Tuesday, August 30, 2011

My Motive(s)

            Why do all of this? Essentially the question comes down to a more complex question: What does financial independence mean to me? This is indeed a far reaching question and couldn’t think of a better forum to answer it. There are three areas of my life that this idea means different things to and I’ll address each.
I.                   Marriage
Being financially independent has eased a ton of the worry from my marriage. No longer do we fight, argue or feel dejected about not “earning enough income” and we have been able to come together and understand our common goals and define new ones as a couple. We still have our disagreements during budget meetings and life still happens between two human beings, but the strain and strife of feeling like we “can’t make it” have disappeared and we’ve been able to focus our energy towards the goals and things that bring us the most fulfillment in life. In the current day to me this means choosing to live below our means and save for our retirement and medium-long term savings goals. I have simplified and gone back to basics for what I enjoy most out of life. Spending money and trying to impress others is gone and I love being able to get to know my wife all over again. We talk and read more than ever before, and although not perfect, have a much better relationship than when all of this started, I feel like we’ve prioritized in every way shape and form what is important in our lives, and are taking baby steps to see them through. For medium and long term goals we plan to: pay cash for our first home, live overseas for up to a year, have a family and adopt at least two children. I really used to believe that the only way to achieve these goals was to earn a high income. Now I know and plan to prove that anyone with any income can do these things without debt by planning and re-prioritizing what matters in life.
II.                Work
Since the workplace is where I have spent the majority of my adult life, it is important to minimize stress as much as possible and enjoy my line of work. This is easier said than done.  Between deadlines, human beings interacting, expectations from managers and trying to find balance, it is hard enough to achieve peace of mind. I remember clear as this morning going to work and being laden in debt. Stresses from home stayed with me at work and vice versa, I was a hamster running on the wheel trying to make the wheel go faster to get somewhere. I admit, I initially was dependent on my work relationship with my employer. I had student loans, rent and a future wedding and home to pay off/buy and I needed them more than they needed me. Once I got on a plan and secured my home first, a lot of the stress lifted and I was able to focus on my day to day job responsibilities and re-assess where I wanted to go in my career. The best part, the stresses at work stopped following me home. Every job has its challenges and good/bad days, but when the stresses of debt payments were gone from my subconscious, the issues at work weren’t as back breaking. I fully expect paying cash for our first home will top this feeling, but it was amazing paying off my last debt and walking into work. From my perspective the relationship changed from dependent to inter-dependent. I didn’t have to be there and was there because I wanted to be. Any day, even today, I can walk away and find a job that pays $20,000 a year and maintain my standard of living. Should the company go under or eliminate my job or be forced to take a pay cut, I will always be more than just fine. In becoming financially independent, I am not dependent on my employer and depend on myself for my future.
III.             Myself
I have a ton of goals in my life that I plan to achieve. On top of the baseline security in my marriage and at work, there is a laundry list of things that I want to do in my life, debt free with no payments, regrets or buyer’s remorse:
  • Work on a one year international mission trip
  • Send  my children to college debt free
  • Pay cash for my Honda Civic Hybrid
  • Set up a scholarship at the public high school of my hometown
  • Coach high school basketball full time
  • Adopt children
  • Serve on boards for local companies and foundations
I grew up under the assumption that I was entitled and anything that I wanted, if I wanted it bad enough, could happen. Along the way I have learned that anything worth having takes effort, discipline, a followed plan and a realization that financial independence is more important than keeping up with the joneses.

Friday, August 26, 2011

A Wedding Weekend

            This past weekend was the start of what will be our end of summer/enter into fall super travelling schedule. You see, the unfortunate side of making budgets and priorities, is that when you have established a travel budget, you end up using it J We were in Los Angeles for the wedding of one of the groomsmen that was in our wedding, and were happy to get the invite. It was also a great opportunity to catch up with family, as the groomsman that exchanged nuptials is the brother of my sister-in-law. It is events like these, when together with family, that I’m reminded that one of my favorite roles in this world, and that’s being an uncle. I loved hearing and sharing with my niece and oldest nephew about their lives. My nephew recently graduated from college and my niece is just about to start her second year in college. So I am closer in age to them than their parents. But having a two way dialogue in which we shared our lives with each other, it just about made my year and left me wanting more and more moments like the ones we had over the weekend. Even now I am getting a little teary eyed just thinking that my nephew opened up to me, and sought my advice, counsel and comfort. I suppose it validated that if I want relationships with family, that making the effort is enough.
            My parents, brothers and sister on the other hand, well that’s a different chapter of the same book. There were a few opportunities that my parents could have joined in on visits with other family members, but because of their biases on whom it is acceptable to be around, chose not to join us on any of the get-togethers we embarked on over the weekend. It was disappointing to hear them say no to every invitation we threw to my parents, and the only time we spent together was the short time in the evenings (my wife and I stayed at their home), if they were awake. This time, unlike times in the past, I did not listen to my father with an empathetic ear as he explained why he was upset this time at my brother and sister, or what about his siblings upset him the most. This time I simply listened, let him knew that I heard what he had to say and did not participate in his justification for isolation. He may despise all family outside of his inner circle, but that is not the lifestyle I am living. He is the paradigm of what I never want to be. I am aware that life will always happen, and people, whether you trust them or not, will do things intentionally and unintentionally to irritate you, but at the end of the day I would rather be the uncle I was this weekend, than the son of a man that pushes just about everyone out of his life.
            I wish the story were that cut and dry with my brothers and sister. Since reading “Boundaries” I have adopted a new, relationship focused approach to the people in my life, and those that I want to be in it. It is without question a work in progress. With my oldest brother and sister, I have the obstacle of a 20 year age gap in which, it is difficult to break down walls into adult conversation. With the other brother, well, let’s just say that we have not spoken more than a few words to each other over the last 10 years and I have a lot of work to do to establish healthy boundaries. As reluctant as I can be on these issues, like staring at a mountain of debt before the baby steps, I know the climb will be hard and rigorous, but I do know that having healthy relationships is a good thing in my life. Even if things don’t pan out the way I’d like them to be, at least they will be real and I will be better for it.

Wednesday, August 17, 2011

My Unemployment

A lot has been made of America’s unemployment numbers for the past several years. On paper our national unemployment numbers have hovered consistently between 9 and 10%. Thanks to the brilliant mathematical calculations of our government entities, this percentage figure is best paraphrased directly from our over-leveraged white elephant and jackass friends’ mouths (see what I did there, double whammy!) Straight from the Bureau of Labor Statistics, here is the definition of who is unemployed, given by the friends we wish we never had in D.C.
Who is counted as unemployed?
Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Workers expecting to be recalled from layoff are counted as unemployed, whether or not they have engaged in a specific jobseeking activity. In all other cases, the individual must have been engaged in at least one active job search activity in the 4 weeks preceding the interview and be available for work (except for temporary illness).
            From this we can deduct that all: college students, part-time employees, seniors attempting to come out of retirement, those on short and long-term disability and those that have simply given up and have stopped applying for jobs – exist in a purgatory like state and simply re-appear when the KGB I mean US Government deem them worthy to be counted.
            It’s a far jump from my soapbox but I’ll try to come back down now. All of the tossing around of statistics and editorials and presidential debates left me thinking about my own unemployment. For a period of about six months following graduation from college having earned my Bachelor’s Degree, I was unemployed. I cold called, sent stacks of resumes online & hard copy, and applied to what may have turned out to be thousands of jobs. And what do I think of it all looking back on it four years later? I wasted six months of my own time and allowed myself to feel unwarranted desperation.
            Coming out of college armed with a sense of entitlement, I expected nothing less than a well to do white collar entry level job making a moderate five figure income. Months upon months passed by and rather than making things happen, I sat back and waited for something to be handed to me. Nowhere in the process did I wake up, realize nor acknowledge that there were thousands of restaurants that needed tables wiped down and dishes washed, retail stores that needed associates, pizzas that needed to be delivered and shipping companies that needed boxes sorted. I was unwilling to hit and hustle, to get my hands dirty. There’s an unspoken aura of accomplishment and personal pride in knowing that you can carry yourself through any rough period. Let’s face it, the KGB US government will never successfully bail you out. They do not have the know how nor the capacity to ensure your success in life financially. It is entirely on you to make it happen. I will say this though. It is definitely not easy to keep your head above water working a minimum wage job until you find full-time employment, with or without an emergency fund. But standing on your own two feet, weathering a storm, and coming out knowing you can get through anything, is the real life in action motto of, “If you can make it in New York you can make it anywhere.”
            Should I ever be face to face with unemployment again, I will be ready for it. I have my six month emergency fund to handle living expenses. I do not see my college diploma as a one way ticket to success, it only gives me a chance to compete in the market place. I am not above nor better than any job, period. Whether washing dishes late at night in the back of a restaurant, delivering pizzas, or sorting boxes in a big box retailer, I will have the courage, fortitude and planning to always be able to  take care of myself with no excuses, or take the “help” from an entity that can’t balance a checkbook.
           

Scott Bolohan, you are an idiot

The below is a direct response to an editorial published in my local fishwrap, today August 17th 2011. Yes the publication is free and this writer makes me regrettably feel like I get what I pay for. The content is so utterly repulsive and disgusting that I felt compelled to respond through this medium. I do find it interesting that I read this editorial while finishing the entry “My Unemployment,” and feel that a double posting on the same day would be an appropriate way to channel my rage.  So without further adieu, this one’s for you, Scott Bolohan.

            Scottie boy, I don’t even know where to begin with you. What prompted me to have this response is one simple idea: That our generation’s laziness and lack of reasoning justifies the expectation of handouts from the public and private sectors, and if not met, validates riotous behavior. You painted our generation, across the world, as entitled and lazy sob’s expecting handouts. Perhaps what triggered me is that there is a hint of truth in your column today. Our generation has been sold that college was a one way ticket to success, and we put so much faith into that message that we expected those degrees to do things that they have never done for any generation. That diploma has never been a one way ticket to success, for anyone in any generation, it only gives us a chance to compete in the market place, that’s it, you still have to make it happen. How do you make it happen you ask when all of your perceived doors are slammed shut and bolt locked, well follow me on the journey below. It would be a bit much to repost your column to my readers, enough residents in the beautiful city of Chicago have had to read your garbage today. So rather I’ll pull some of your priceless gems and provide my rebuttal, enjoy!

“The economy isn’t good for any American, but it’s particularly hard on us 20-somethings trying to get a start with our lives.”

                Really Scotty, really?! The key here is to ask yourself one simple question, are you better off in your life today than you were five years ago? Whether you are or not, you only have yourself to blame. Five years ago today I was four months away from graduating college with my B.A. I worked part-time for a real estate company during my last term and was compensated with free rent. Due to my student loans and ZERO income I had a negative net worth. Nothing in savings, nothing for retirement and no credible work history. This was in 2006, the height of the real estate boom, companies were hiring and the ’08 bubble burst was still two years away. I came out of school with my little sheepskin expecting call backs on my resume and had none. Fast forward five years to today, my net worth stands at just shy of a quarter of a million dollars, I have a six month emergency fund, am regularly contributing to my 401k and Roth IRA, have mutual funds with average annualized returns of 18%, and plan to pay cash for my first home in about a year and a half, all during the “Great Recession.” The point here is simple Bolohan, the economy is what you make it. White collar jobs aren’t calling you back offering a cushy five figure income? Guess what, brace yourself because this dose of truth is going to hurt: There’s plenty of restaurants up and down Chicago, in all neighborhoods, that need tables wiped down, dishes washed and pizzas delivered. Success in life means having the heart and drive to do whatever it takes to keep your head above water and be accountable to yourself. Bootstrapping! It’s a term not used much by our generation but really gets the message across. It’s pulling yourself up by any and all means necessary to be self sufficient. Not relying on your parents, our inept government (both sides), or a company to solve your problems. You have to be responsible to yourself. And if you have to be in an office because you can’t get your wimpy hands dirty, entry level sales jobs at most companies across all industries are always hiring. Yes they are high turnover and high stress coupled with performance expectations, but you wanted a chance right? Very few of us are bred to be successful at direct sales, but a foot in the door is a foot in the door. The scenario I envision here is getting into a sales position with a company/industry you are interested in, bootstrapping for one to two years, proving yourself a valuable employee, and being patient for positions to open up in fields and departments that you want to pursue. A successful career is never a straight line, even when you own your own company and have limitless resources available. You still have to plan and adapt to what the market demands (“Who Moved my Cheese” would be a great book for you) which brings me to your next gem:

“And those who do barely are getting by with the amount of college loans we have to pay off.”

                You seriously need to end the pity party, I’m not RSVP’ing. We all know that college is expensive. But you CHOSE to go to a private university rather than a state college, and community college (and its cheaper prices) was too good for you, right? Your “college experience” consisted of bar hopping with the collegiate faithful, and my ideal “college experience” includes working full-time at a real company building experience, and going to class to learn, not get over my hangover. Working through college and transferring to a state school from a community college is the most cost effective way to get the degree that you will need to compete for jobs. Could it take six years to get your B.A, probably, but I’d bet you’d trade for that any day of the week to get rid of your loans. You need to get yourself together, make an emergency fund, and snowball that debt, no one is going to do it for you.

”We need help from people capable of changing things, people who have the greater interest of the country in mind.”

                You need help? Did you really expect our 43rd president to bring change? Did Bush 42’s tax cuts enrich your life? Did Bill Clinton’s balanced budget enhance your well being? Are we still feeling the effects of Reaganomics today? You will be met with bitter disappointment for the rest of your life expecting D.C. to improve your well being. You can count on two things from all politicians, regardless of affiliations: (1) they will steal your money, (2) they will waste your money. You have to support yourself. One of my favorite quotes from Dave Ramsey, that I wish I had come up, to paraphrase, goes something like this: “You will be the same person you are twenty years from now, making the same money you are today. The only things that change are the people you meet and the books you’ve read.” Having a high income will not change your happiness nor fulfillment. Live below your means, get on a plan and get over yourself, “We have met the enemy, and he is us.” As for this “greater good” nonsense, if you want to live in a country that abides by that rule, then you need a delorean with a flux capacitor, and need to transport yourself to Soviet Russia circa 1970. The greater good, a level playing field, everyone being equal, whatever you call it, it’s doomed to failure. Our world has been there, tried that, got the t-shirt. Try re-reading your history textbook, if you haven’t sold it for beer money yet. This “greater good” that you subscribe too, does it happen to involve America’s best and brightest companies being forced to hire an unproven and unskilled labor force (a college degree does not equal job skills). Because that alone is a one way high speed ticket to economic collapse. Companies forced to be infiltrated by a generation of the “entitled” who depend on the KGB US government for their well being, will be run right into the ground.

“The traditional path to American success is no longer is possible”

            Look here genius, it’s not that the traditional path isn’t possible, it’s that it’s no longer being followed. Our grandparents and great-grandparents generation hated debt and saved for rainy days. They didn’t borrow against the value of their homes nor borrow against their 401ks. They lived below their means and succeeded in their lives financially without credit cards. They also stayed within their companies and/or industries for the majority of their working lifetimes. To me, that says that the ones of these generations that went to college, carefully evaluated what they wanted their careers to be in before setting foot on a college campus. Yes, interests change and there are always exceptions to the rules, but the past generations did a better job at thinking about what they wanted to make of their life than we are. America’s past generations, in the face of financial strains, dug ditches until their bodies exhausted, where was the last ditch you dug?

“We just haven’t been given a chance…I’m worried we’re heading down a path similar to the events that unfolded in London…My generation wants to participate. However if we continue to be ignored, it’s not hard to imagine frustrations boiling over and into the streets, and our leaders would have only themselves to blame. I hope it doesn’t come to that. But without any changes, it almost certainly will.”

               
            Perhaps it’s my unusual sense of humor, but one of my favorite things to witness in this world is a parent at a grocery store trying to console a crying child that wants something immediately. The child screams, drags their feet, cries, and essentially throws a temper tantrum, leaving the parent stressed beyond belief trying to calm their child down. Unfortunately Scottie you are no longer a child. Being an adult means having to delay what you want immediately, for your own personal greater good. And when you’ve made mistakes along the way, an adult learns from them and deals with them on their own. I’m one of the biggest critics of the KGB US government, I really am, but you are responsible for your own choices: You chose to go to a private college and take out loans, you chose to hold out for a cushy white collar job and not get your hands dirty with a minimum wage job, you chose to not have a liquid emergency fund and you chose to wait for the KGB US government to fix your problems rather than bootstrap and do it yourself. So Scot, I strongly urge you, read Dave Ramsey’s “Total Money Makeover” and learn to rely on yourself so that you aren’t sitting at home in your golden years waiting for a social (in)security check so you can eat.

Tuesday, August 16, 2011

Book Review: “Boundaries” by Henry Cloud and John Townsend



You know those “A-Ha” moments where you learn something that you wish you knew twenty years ago; this book is filled – cover to cover- with those. “Boundaries” is a wonderful must read book about relationships. From friends to co-workers, to family, marriage and everything in between, this book brings unbelievable perspective to daily life, including (and what I consider most importantly) to how you view yourself. A central message in the book is personal responsibility.
            For me, I did not grow up in the most nurturing of environments. My mother chose to place a priority on her career over family and my father was a hard lined disciplinarian, the phrase, “Because I said so” echoes in my head to this day. Through my upbringing, I learned to be compliant as well as rebel, to keep any and everyone away from really knowing me because I had become comfortable and used to keeping myself from having real relationships with anyone. However, this book showed me that regardless of the time, situation and background, as an adult, I am responsible to how I react and carry myself day to day. Yes the past and everything in it happened, but as an adult I have the choice whether to continue with the unhealthy way I was taught (intentional or unintentionally) to be in relationships, or to choose for myself.
            Up to now I do not have the relationships that I would like with any of my immediate family members. Any time I talk with my parents, the bulk of conversation hovers around sports topics and nothing of substance. With one brother there has been no relational contact for almost ten years, with the other I feel a pressure and burden of not being “Christian” enough. And with my sister, we talk on rare occasion and not nearly as much as I would like to. In retrospect this is not how I pictured my family relationships to be at the age of 26. In each case with all of their intricacies and complexities, one constant remains and was pointed out by reading, “Boundaries,” that I approach each of these relationships like a scared 8 year old child, unwilling to “rock the boat” i.e. make things worse, and I have not asserted who I am nor what I stand for as an individual to any of these people.  
            This is the beauty of, “Boundaries.” Establishing personal boundaries with people you interact with, allows you to re-assess what is important to you in your life and filters out the garbage. In the coming weeks, months and years, I will be conveying to my loved ones what I want most out of our relationships: to have a real one. This will certainly cause hurt feelings and have the ingredients for combustible scenarios, but continuing a fa├žade for the rest of my life, now that brings harm to the other person, and most importantly myself. But whether, through the help of a loving support network and a heart seeking genuine relationships, they accept or reject my drive to have real relationships, at least it will be honest. And through this process I can let go of all past hurts and hang ups that I have carried with me through all of my life, and finally forgive and become the person that I want to become.
            “Boundaries” also has inspired me to establish and build a loving support network of people that will respect my individuality, and in turn I learn to respect theirs. In the coming months, my wife and I will be participating in small groups at our local church, as well as attending Dave Ramsey’s Financial Peace University for the first time in a group setting. Through these programs I will be reaching out to find like minded people to hopefully build a webbed support network for real relationships. “Boundaries,” it’s all about becoming the best version of yourself.

Monday, August 15, 2011

Why I hate debt

God I hate debt, I really do. I do not own a single credit card for myself. As an individual I owe no one and no entity a single penny. There is nothing that anyone or anything can offer me that I would want to go into debt for. I plan to pay cash for the used cars I will use in my life and, along with my wife, will pay cash for our first home together. One of the biggest reasons I despise debt, and the only reason that I needed, is because it ties up your monthly income. Easy credit lead me to waste my own money and made it easier for me to be a hyper consumer. Need groceries? Swipe the card. Going out for the night and want to buy everyone a round? Swipe the card. Christmas is next week? Swipe the card. Using credit for everyday purchases put me in a mindset to keep up with the joneses and live beyond my means. But I was also being “sophisticated” because I was “earning” 3% on every item I spent on rewards. So if I spent, say $10,000 annually on my credit card, I “earned” $300. Now, instead of frivolously wasting that money, I invest it in a good growth stock mutual fund that earns 12%, in one year my investment earned $1,200 and the original $10,000 stayed with me and didn’t get spent. I was such a moron!
 Using a credit card made it easy for me to spend more than I wanted to. Having one felt like a status symbol and being apart of an elite club. Truth is that companies that offer credit cards are not non-profit companies. Please do not get me wrong, I am not against running a successful business and earning as much money as possible (see title of this blog), but I am against us consumers buying into the myth that credit is how we get ahead in life and are “successful investors.” My wife, who has an advanced graduate degree, told me about one graduate level finance course. In a lesson, the class was taught about the advantages and strategy of using borrowed money to invest in the stock market. You know what was funny, in reviewing her notes and textbook, of all the formulas, theories, charts and suggestions, there was not a single recommendation of what to do, if you tap into your Home Equity Line of credit (aka HELL, the banks just left off an L) to invest money in the stock market and you lose your job/go on short term disability/take a pay decrease/the overall market is down and the value of your investments as well as the value of your home decrease faster than a speeding bullet. These things could never possibly happen right? *wink wink* *nudge nudge*
My strategy has been painfully simple and straightforward. When I shredded my credit cards I also established a liquid cash fund to cover myself in the event of any and all emergencies. My logic was and continues to be this: If I were in a true emergency, for example I lost my job/income and needed to pay rent, would I rather (A) use a credit card and have to pay the balance back, possibly with 18% interest, or (B) use a liquid cash emergency fund that can cover my living expenses for 6 months while I get back on my feet and stream income again. Between those two choices, I’ll take option B 10 times out of 10.
Living on a cash based budget has forced me to live below my means and invest the difference, making my financial independence priority in my life and erased the desire to convey to the world a perceived social status. Living on credit, it was easier for me to choose to live above my means and never have money to invest. Being cash based, I have no monthly payments and do everything I can, even on money budgeted, to stretch every dollar as far as I can. Credit cards did not encourage me to make the most with the money I earned. Frugality and credit cards do not go together. Which leads me to the definition of frugal, according to our friends at Webster: "Characterized by or reflecting economy in the use of resources"
“Economy in the use of resources.” That may be one of my favorite financial phrases of all time. Economy in the use of resources is not the illusion of using other people’s money and earning a piddly 3% back on your money, that doesn’t even keep up with inflation! AND I used to waste my money to get that pathetic amount back! So I had a great looking closet and nothing in savings, I certainly wasn’t born the brightest crayon in the box. Using cash has made me evaluate, re-evaluate and cross evaluate every spending purchase that I make, planned or not. Sure, I budget $380 every month for groceries, but do I really need those grab items at the checkout line? Do I really want to buy one shirt at H&M or buy five at my local thrift store? When I rationalized, thought things through, and refused to accept the argument that banks and credit card companies made, the choice and mantra became easy and truthful: CASH RULES!

Friday, August 12, 2011

Investing

Simply put it’s one of those scary words that I never completely understood until I sought out the information for myself as an adult. In high school and college I was given brief and generic statements such as, “you should always invest in your future” and gems like “put money away for retirement,” but what did it all mean and how do you do it? The best understanding I had as a teenager was that rich and wealthy people invested, but I never knew how or in what.
            When I set out on my own personal journey to educate myself, I found a plethora of information that all contained big words that were hard for my evolving brain to understand. I checked out online articles from personal finance pages, editorials, read money related magazines, and at the end of it found that just about everyone out there has an opinion and a theory, but I couldn’t find examples of tried and true strategies that actually worked. Which, and I’m beginning to feel like his name will come up a lot in this blog as long as it exists, I was introduced to Dave Ramsey.
            As a preface I will say this before continuing, I never invest in anything that I do not understand or could not explain to my 10 year-old nephew. Before putting a penny into investments I must comprehend the nuts and bolts of what I am investing in, no ifs ands or buts.
            Once I found my ground in life: living on a budget, establishing a six month liquid cash emergency fund, planning short-medium and long term goals, paying off all debts, I was ready to begin this thing called investing. As a general rule of thumb, any money that I set aside to invest I do not plan to use for at least 5 years, no exceptions. Although the primary vehicles I use for investing are a 401k at work and a Roth IRA, I also utilize an account that allows me to trade equities that is not a retirement account, but I use for any plans that are at least 5 years away. I always invest for the long term and never put money into the stock market that I need in the short or medium time spans of my life.
            But what is it that I invest in? Mutual funds. Basically, a mutual fund is set up like this: A team takes in a collection of money from investors (you and me). They then use this pool of money, that has been mutually funded by you and I, to buy a collection of items. So rather than buying stock into a single company, this mutually funded “account” can be used to buy stock into hundreds upon thousands of companies. Now there are several strategies/objectives that the mutual fund team can follow. For instance they can focus on finding small US companies that are expected to grow, this is called a Small Growth Cap Mutual Fund (cap for capitalization, which means the size of the company and how much money it makes, for example: Wal-Mart = Large Cap company, Your corner grocery store with 2 locations = Small Cap company). If the mutual fund’s objective were to invest only in bonds, it would be called a Bond Mutual Fund, etc.
            Now I avoid and no do not own neither single stocks nor single bonds in any of my portfolios and only invest in mutual funds, but where is the diversification you may ask. For me, this comes through the type of mutual funds that I own. I spread my investments across four types and use strict criteria when investing in funds: Small Cap Aggressive Growth, Medium Cap Growth, Large Cap Value and International funds. The criteria I use are the following: Fund has existed (inception date) for at least 10 years, has returned at least 12% average annualized returns since inception, has a fund manager that has been with the fund at least 5 years, and, although this is more of a subjective criteria, has an allocation layout across companies in several business sectors – so that, say for example, the fund is not over loaded in companies that build houses and the housing market is in a long downturn (see your local housing market today), that the fund as a whole would be fine because it is not “putting its eggs” into one industry basket.

            The first place I start is setting aside 15% of my pre-tax income amount for retirement. I max out the match that I receive from my place of employment, which happens to match $0.50 to every $1 that I put in up to 6%, so on the money I put into my 401k I immediately gets a 50% return on investment. Unfortunately though, the fund options at my company completely suck. I am not a fan of target dated funds. I feel that the concept of mixing a mutual fund with stocks and bonds, and “easing” the allocation towards bonds as the “year” date gets closer, allows the investment manager and his team to go into cruise control when selecting stocks, and that the return on my long term investment would barely beat inflation, let alone hit a 12% mark. So as for the actual options in my 401k, I selected the best valued bond fund so that the money that’s invested at least keeps pace with inflation. The remaining 9% flows through to my Roth IRA, which all of the gains made on investments, are tax free, and in the Roth I utilize my four mutual fund investment categories.
            Now why 12% and doesn’t the stock market scare me? Looking into the history of the Dow Jones and the S&P 500, 100% of 10 year periods in ANY time frame including the “lost decade” from 2001 to 2011, have made positive returns. Since the beginning of these two “big board” items, annualized returns have yielded greater than 10%. Now will some years/periods show low returns, absolutely. But by investing in mutual funds with long track records with investment managers and researching teams that have a clue, and by investing with long term goals in mind, any and all storms/hurdles are eventually cleared. With the proven long term success of well managed mutual funds, my fear of investing subsides and I continue with steady, long term focused growth. And to be honest, the real fear for the long term lies not with the stock market, but rather inflation. Average inflation I believe hovers somewhere between 3 and 4%, so if you leave your money in a cookie jar, in 10 years you lose purchasing power. Put it in a CD, you lose purchasing power. Buy bonds or bond funds, you maintain purchasing power. Invest in historically proven and well managed mutual funds and you kick inflation to the moon and back. 12% is not attainable or realistic the naysayer says, well, in a way they are right. Not counting the 50% match I receive from my employer, my mutual funds have average annualized returns as of this year at 18%, so the naysayer is right, you may perform better than 12% J -- even during the “Great Recession!”
            I gave some thought and consideration to posting which funds I invest in, but decided against. Should anyone come across and read this, I feel that the best influence I would want to have is to create discussion, internal dialogue with any readers, so that you think and rationalize for yourself, because I feel that self-empowerment is the strongest of any weapons.

Tuesday, August 9, 2011

As the Market Turns...

Market volatility can really mess with your head. Even now in the rubble of what is my second bear market as an investor, the talking heads, screaming news headlines, and red marks from the big boards can’t help but grab my attention. But it is in these times, as I do not expect this to be the last one I will ever see in my lifetime, that the basic fundamentals bring me solace during the downturn. These times are also important because they really bring to the forefront and highlight what should be responsible investing practices that I abide by. These include:

1.      Establishing a liquid emergency fund before investing a single penny
2.      Erasing debt from my life
3.      Investing for the long term

The last point is without question the most important and crucial to my wealth building game plan. Jumping in and out of the market through bull and bear markets leaves you open to getting your head ripped off, literally(I’ve personally never found bulls nor bears to play nice). Single companies can go bankrupt in good and bad economic environments (see debt is dumb). And trying to time the market, trust me, there aren’t enough spreadsheets in the world to cover the scenarios that can play out (and this coming from a certified nerd). Instead, which I will cover soon in an investing column, I opt for a diversification of mutual funds. Spread across domestic and international, small-medium and large companies, I expose my risk tolerance to a basket of funds with trusted and proven investment managers. How do I know they are trusted and proven? In searching for mutual funds, I have simple yet strict criteria for a fund to even make my list of consideration. The fund has to be at least 10 years old with an average annualized return of at least 12% since inception. Although for me the older the better, 10 years is a great gauge for bull and bear markets to play out and evaluate an investing team’s performance. For me, an aged mutual fund tells me that they have been through good and bad economic times before, expect to see them in the future, and hold a long term investing plan of growth, not swinging for the fences (which often times leaves you striking out).
But back to the market today. With the downgrade of the US government’s credit rating, a presidential administration unwilling to admit it’s spending problems and companies expecting to be below expectations for 3rd quarter reporting, our market is bullish and taken an exceptional downturn in the last week. With emphasis on the downgrading of the US government’s credit rating, these events will be considered in history to be a negative geopolitical event, causing an immediate downturn in the stock market. Brace yourself, because what I am about to say may shock, horrify and rock your world: Negative geopolitical events that negatively impact the stock market have happened in our past and will happen in the future. GASP!
September 11, 2001. The dot com bubble burst. The invasion of Iraq. Stagflation during the 1970s. The JFK assassination. The Cuban Missile Crisis. World War II. The bombing of Pearl Harbor. World War I. These are all examples of negative geopolitical events that knocked the wind out of the stock market for a period of time. What’s resulted historically is proof that the American economy is the greatest fighting machine to be created (American economy, not government spending. That is of course unless you’ve felt “stimulated” from QE I & II). With the exception of WWII, within one year to date of the negative event, the stock market returned as a whole to “pre-fall” levels within 365 days every time! After 9/11, it took one month for the market as a whole to return to where it was on 9/10. Tack onto this, that every 10 year period, including this past decade, has generated positive returns. Long term investing generates results, pulling money in and out with “sophisticated” tricks like short selling/options/futures will leave you heartbroken and with low returns over your investing lifetime that would be lucky to keep pace with inflation.
I cannot stress enough the importance of investing fundamentals: invest in quality mutual funds that have been through market waves and crashes before, invest in the long term and always see the bigger picture.

Monday, August 8, 2011

Book Review: "The Millionaire Next Door" by Thomas Stanley and William Danko


            In a world where reality television dominates and hyperconsumption is the norm, this book gives me the peace of mind I need to continue on my journey, and reassures me that I am on the right track for achieving financial peace in my life. “The Millionaire Next Door” is one of my favorite non-fiction books of all time, and is a delight to read over and over. The authors, Stanley and Danko, have conducted decades upon decades of research on the affluent in America. This is the AFFLUENT, not hyperconsumer celebutards, politicians who can’t scratch two nickels together, or overnight dot com millionaires. The authors have studied and researched with individuals who have a net worth in the millions of dollars. Their findings in summation, is that 80% of America’s millionaires are first generation wealthy and live well below their means. This means that those who successfully build wealth and hold onto it over their lifetimes, look more like Bill Gates and Warren Buffet rather than Paris Hilton and Snooki.
            One piece of their findings that I find particularly inspiring is that high income earners, are more prone to be under accumulators of wealth and are more prone to live paycheck to paycheck. The reason: either through their job and/or lifestyle, are encouraged to embrace a lifestyle of being a hyperconsumer, essentially choosing to finance a jaguar before dropping a penny towards retirement savings. Do they look great and have lots of nice toys? Sure. But high income earners tend to catapult themselves onto being a hamster on a wheel. Clients, neighbors and family tend to expect them to look and act the part. To be honest, although in retrospect not fair, I place these same expectations on “high income” earners. Would I expect my lawyer, general physician or accountant to be dressed to the 9’s from Goodwill or Neiman Marcus? My maturity allows me to admit that this is a double standard in my life, and no I am not proud of it. But it does prove a point. If I, someone who has re-programmed himself to invest in mutual funds rather than nights out on the town, have this same expectation of perceived high income professionals, then all of us need to be that much more conscientious of not trying to keep up with the joneses regarding lifestyle.
            The book, though in parts can become tedious regarding statistics, emphasizes and re-emphasizes one main point, that to become wealthy and stay wealthy, the most successful have lived below their means. For me this meant completely re-examining the way I live my life, and the way that I enjoy it. Gone are the days of attending professional sports games, going out to places with outrageous cover charges, meat heavy meals, owning the latest gadgets and paying retail and “advertised” sales prices at clothing stores. And a funny thing has happened along the way, I love every minute of where I am now and feel more fulfilled in my life than five years ago. You see, I traded the previously mentioned things for: having a healthy diet, free movies in the park, tossing Frisbee by the lake with my wife, seeing more of this amazing city by exploring the summer street festivals, listening to live music at my local tea lounge, working out and reading more, renting movies for free from the library, cutting cable from my life (and btw, I don’t get regular channels either J), and the list goes on and on.
            Getting away from wanting to please other people has lifted a burden from my shoulders, one that weighed as much as an elephant. In living on a budget and below my means, I’ve re-examined what I value in my life. For me, that is a loving list that includes my wife, learning and new experiences. At the end of the day, this book inspired me to not look to my closet or the approval of others for validation that I am succeeding in life. But rather, to look internally at what I value (which also includes financial independence) and pursue it with an unrelenting fury.  

Friday, August 5, 2011

If I could do college again...

I’ll set the stage with an overview of how I went through college. I rushed through my undergraduate program by taking classes year round. I never took a break and was in class for fall, winter, spring and summer courses. In three years from the date that I graduated high school, I had earned my undergraduate degree. Somewhere in the midst of it all I found my way to work for a few retail stores, bartend at a French restaurant, and dabble in a real estate business that compensated me with rent free living for a semester. I would have done none of the above if I had to go through my undergraduate program again. While I had the bragging rights of getting through school in a quick manner, 0 potential employers saw that as a criteria for in demand jobs. My resume, though with no empty spaces or gaps, had no credible job listings that would be attractive to an employer. When not in class I preferred to find an easy going, low commitment employer so that I could have extra time for the “college experience.” Which simply means that I drank way too much than I should have while chasing that sheep skin. I had the illusion in feeling entitled to college, that I had no vision or meaning to what college really meant. College is not a one way ticket to success in the real world. All a college degree does is allow you to compete for a place in the job market, end of story. At the end of it, all the degree shows is that you successfully passed a series of tests. I found that employers still want you to interview well and most importantly, have relevant job experience.
            If I could do college over again, I would have taken at least six years to earn my degree. I would have gone to classes part time either on weekends, at night or online, and worked an entry level position either directly through a company or via a temp agency and built relevant work experience, FULL-TIME, along the way. I would not have spent my weekends or free time going to college parties nearly as much as I did. This way, once I graduated with the degree, I would have years of relevant work experience behind me. Plus, in a much more economical way than interning, I would have gained knowledge of industry fields, received hands on experience, and would have been able to filter what I was looking for in a career and employer.
            I also would have done what my wife did. I would have applied to the 4 year university that I wanted to attend out of high school, and upon acceptance, deferred enrollment. Then I would have worked extensively with an academic advisor, so that I could attend and transfer as many courses from a local community college AS POSSIBLE right up to the limit, and then transferred to the 4 year and finished out for the undergraduate degree there. These tactics would have saved me so much money incurred during college, and I can guaranty that I would have come out of school debt free.
            For my kids one day, my wife and I plan to set aside funds in an ESA (which you can think of as an educational IRA, growth is tax free as long as proceeds are used for college related expenses). This, combined with savings in our long term investment tax vehicle, scholarships, and our kid WORKING, will allow our next of kin to attend college and come out debt free, with real world knowledge and a true understanding of what the college experience should be. I was wrong in believing that college was all about partying, drinking way too much, and occasionally attending class and taking a few tests. I would have been on a stronger footing for life if I had: worked a real job while attending school, did not see it as a one-way ticket to success, had kept costs low in attending and transferring from a local community college. Thank God I made these mistakes so that I make sure that my kids do not do the same.

Wednesday, August 3, 2011

Budgeting

My quest to go from 0 to $1 million could not be dreamt, imagined nor conceivable if it weren’t for the dreaded “B” word. That’s right, I’m talking about a being on a budget. I could not have begun this journey nor sustain and build upon any progress made without having a written plan that myself and my wife agree upon before any month begins. At first I was reluctant to do one. It felt like tedious work that I could never get right for myself, let alone work together with someone else to figure out. But let me tell you, of all the re-writes that were done, the fights with myself, the even bigger fights with my wife, we learned to work through it and come together for our common goals, and really took the time to analyze where we were and where we wanted to go. It takes a TON of patience, compromise and realistic thinking, but every moment of it is worth it after we worked through those first few trial and error months, and figured out how to work together and walk hand in hand towards our goals.
It’s amazing, coming together and working through a budget with my wife, brought us so much closer together than any marriage counselor or relationship book I have ever experienced. Piecing this together made us talk about our hopes and dreams, gave opportunities to convey and understand what the other person was feeling/thinking/dreaming. And I will be the first to admit, our joint budget has items on it that would NEVER be on my budget if I were single, and there are items that would NEVER dare find its way onto my wife’s if she were single. But in putting this together we made the decision to work together and plan out our goals, and start to learn what that magical word called compromise really means.
I’ll address probably the biggest negative connotation with budgets, because naturally, I fought this beast as well. The fact is, budgets have the immediate feeling of handcuffs. Having one forced me to look at where I really was in my financial life. I immediately saw where my money was bleeding out of (mostly social outings and unexpected/unplanned after work drinks) and knowing all of this left me with only one option: I needed to change. The truth was that I had handcuffed myself from having security. I had earned one year’s worth of salary and had less than $1,000 in the bank to show for it, simply because I was not paying attention or caring about where my money was going.
And man, once I had that first month’s plan done, I had officially drunk the Kool-Aid. You see for me, the budget broke the chains of my own stupidity, and freed me to dream and achieve what I really wanted out of life: Having 6 months worth of expenses in the bank, proposing to my girlfriend, marrying my wife, saving to pay cash for a house (more on that later), have money for retirement so I am not relying on social (in)security, and the list goes on and on.
Will every month go exactly perfectly and neatly as planned? OF COURSE NOT! But being on a plan means being able to readjust categories to help pay for unexpected events. As a preface, there are a few items not in this budget that are covered through pre-tax payment options we have through our employers that include: health insurance premiums, one public transportation pass, dental insurance and 401k savings. Now before every month begins we put and agree on paper where every dollar will be “spent” down to a zero balance.
               You’d be surprised the amount of things that you can do in Chicago every month without spending more than $200, and I am going to love sharing weekend adventures with all of you. For groceries, we keep costs low by making roughly 95% of our meals vegetarian, you’ll also be surprised how much all forms of meat cost and all of the fun, unique and tasty vegetarian options there are to have every day!  And even more savory is a zero balanced budget…Take that federal government J