Category: Saving Money

I started thinking recently about how I would pass down stock investments to my children when I pass away. It’s one thing to just give them the stocks, but there would be little stopping them from just selling those stocks, cashing out, and blowing all of that money on cars and vacations. The real gift that I would want to pass down is my mindset for saving and investing in quality companies. I also couldn’t expect them to read everything I’ve ever written about stocks either, so I thought it would be a good challenge to try to get everything down to a single article. So this is my attempt to pass down important chunks of knowledge to accompany the portfolio.

“1 dollar every month is better than 50 dollars now”

I believe this concept to be the cornerstone to building wealth and living a secure and enjoyable life. A set amount of money being paid or received is only ever going to be that amount of money, but money moving at a regular rate has the potential to become far more over a long enough timeline. If I receive 1 dollar every month for 5 years, I’ve received a total of 60 dollars, and will keep making more every month. This also means that something that costs me $1 per month will exceed the cost of a $50 one time payment after 4 years and 2 months.

Another way to look at this concept is renting versus owning. If you plan on owning something long enough that the cost of renting exceeds the one time cost of ownership, then it is a better choice to own it. The best thing you can do is own an asset that other people want to rent, so you pay once, and they keep paying you forever.

“The value of stocks is not the price they can be sold for, but the income they produce”

This goes back to concept #1. Owning dividend paying stocks gives you free money for the rest of your life, with no limit. In fact, the amount of money you receive from the stocks you own will probably increase each year. The best companies increase their dividend payments every year. Selling a stock for a one time payout is basically robbing yourself of all the future dividend payments you would otherwise receive. The only time a stock should be sold is if this income is going to be lower this year, than it was last year (disregarding any special 1 time dividends or splits).

“If you can’t explain a company’s business in 2 sentences, you probably don’t understand it and probably shouldn’t buy it”

One of the biggest mistakes an investor can make is buying shares of a company without any knowledge of how that company makes money. This doesn’t mean knowing all of the details of Coca-Cola’s distribution channels. It means knowing the products or services that a company sells and knowing the general demand for that product or service. People everywhere drink Coca-cola soft drinks, and they probably will continue to do so for the foreseeable future.

“Buying a stock in the hopes that its price will increase over any period of time shorter than 2 years is gambling. Don’t gamble your money”

This is pretty self-explanatory. Gambling is not a reliable way to build wealth, and buying a stock with the intention of selling it later is gambling. Instead, focus on buying shares of companies that are going to keep growing their business and profits and share those profits with investors. This is the difference between buying some apples with the intent of selling them tomorrow and buying them to plant trees that will provide you with apples for life.

Without getting into the highly technical concepts with which I use to evaluate my investments, I think these values could help set someone along a path to financial wisdom.

And of course, my favorite phrase: “Buy Smart, Never Sell”

I’ve been playing a lot of Diablo 3: Reaper of Souls lately. One feature that helps you collect better items for your character is being able to change the difficulty. The game boils down to killing monsters so that they’ll drop items for you to use to better kill more monsters. By increasing the difficulty from “normal” to “hard” (and ultimately “Torment”), the monsters become much more difficult to kill, but they also are more likely to drop high quality items.

I can’t help but see the parallels to investing part of your income. “How?” you ask? Let me explain.

Sadly, your day job probably doesn’t involve killing demons (or luckily, depending on how you see it). However, you do have monthly challenges to overcome: bills. Every month, you need to use your hard earned cash to pay for life’s comforts: food, shelter, transportation, and fun. On the easiest difficulty setting, you spend all of your extra money on fun after the other 3 more important categories. This doesn’t get you any closer to financial independence or retirement, but it’s a lot easier to enjoy that instant gratification. If you instead save some of that extra money and invest, life in the short-term is more difficult to enjoy, but you’ll reap long-term rewards.

The best items in Diablo 3 are called “Legendary” items. As you increase the difficulty, these are more likely to drop. However, it can still take a fair amount of playtime in that harsher difficulty before you see your reward.

Your difficulty setting is basically how much of your income you choose to save. If you can save 5% of your paychecks each month, life shouldn’t be too much more difficult, and you’ll be investing toward a stronger financial future. However, if you can save 50% of your paycheck, things get a lot harder, but you’re going to be working toward that “Epic Win” at a much faster rate.

Let me create a scale based on Diablo 3 difficulties to give you an idea.

Normal – 5% saved
Hard – 15% saved
Expert – 20% saved
Master – 30% saved
Torment 1 – 40% saved
Torment 2 – 50% saved
Torment 3 – 55% saved
Torment 4 – 60% saved
Torment 5 – 65% saved
Torment 6 – 70%+ saved

Just like in Diablo 3, it’s about finding the difficulty setting that is the most rewarding while still being comfortable. If you’re dying too much in Torment 3, then maybe it’s best drop it down to Torment 2. Similarly, if you’re getting too unhappy saving 40% of your income and wish you could spend some of that money on movie tickets or video games, maybe you’d be better off aiming to save 30% and treating yourself to some fun right now. Just remember, by reaching for that long-term gratification, you’ll be thanking yourself later in life.

The good news is that it gets easier the longer you play. As you get better items in Diablo 3, you may find that you’re capable of taking on the next difficulty level. When it comes to investing, each dividend stock you buy increases your income, so after a few months of saving 30% of your income, you might start making enough to keep the same standard of living while saving 40% of your income.

Right now, I’m probably closer to Master difficulty than Torment 1, but by the end of the year, I’m hoping to be able to reach that 40% savings rate.

How about you, what difficulty setting are you taking on in investing?

Investing for early retirement is actually more about budgeting than investing. Finding a high growth rate on your investment is nice, but by contributing more each month, the end result is dramatic.

If you were able to save $500 a month and invest it with a 6% rate of return, after 30 years you would have about $500,000
If you saved $500 each month but managed to find a 7% rate of return, after 30 years you’d have over $600,000
But, if you raised your savings to $1000 a month, at 6% return, you’d have just over $1,000,000 after 30 years. A MILLION DOLLARS!

Additionally, by adapting to a cheaper lifestyle, you also reduce the amount of money you’ll need when you retire. This makes good budgeting skills a two pronged attack on early retirement.

One common problem most people have with budgeting is knowing how much to plan for. Most people have trouble looking forward, but hindsight is 20/20. Look at your bills from last month, this is the best way to get an idea of what you spend each month. First, compare the total to your income, and determine if you have any money to save at all. If so, great! If not, then it’s time to make some cuts.

I guarantee that if you haven’t been budgeting in the past, there are some things you could cut down on. I’m a sucker for eating out. The weekend rolls around and I want to celebrate with tacos and margaritas. The thing is, I could make tacos and margaritas at home for a fraction of the cost.

You’ll probably see your weak spots when you go through your credit card bill item by item. Once you identify the areas that you can improve, it’s time to make a plan and stick to it. My plan going forward is to only eat out if we’re invited out with friends, and cook at home the rest of the time. This takes discipline, but the most rewarding things in life usually do.

Good budgeting doesn’t stop there though. You need to look back each month and do this same exercise until you’ve got your spending optimized. Now you can invest more money and hit your target number faster.

The big 3 costs that most people have are housing, food, and transportation. These are not only the biggest costs, they’re also the biggest changes to your lifestyle. However, if you can get them lower and get used to the lifestyle, you’ll see dramatic benefits in your budget.

At the same time, small things can add up fast. Consider “cutting the cord” and switching to streaming services like netflix instead of cable. Do you REALLY need a data plan for your phone? chances are you’re within range of an open wifi network more than you think. Try giving people hand-made gifts during the holidays instead of buying them expensive gadgets.

Also, remember that anyone that judges your frugal lifestyle is probably going to be working 20 years from now when you’re waking up at 11:00 AM while your dividends cover your expenses. Money buys time, and time is more valuable than stuff.

Somedays The life of the dividend investor is smooth sailing. You’re under budget for the month, your dividend checks are coming in, and nothing can get you down. But then there are those other days. The days that nobody gives you any respect at work, or best laid plan didn’t work out. You feel bummed out and your will power is at an all time low. These are the days that can discourage you and make you want to spend any extra cash you have on hand on something to make you feel better.

It can seem really easy to just splurge and buy shiny new toys and expensive dinners to feel better about life. Unfortunately, the easy way out is a step in the wrong direction. A bad day at work should motivate you on your investing journey. Instead of thinking of your portfolio as a collection quality dividend paying stocks, think of it as “F U Money.” In the future, when your dividends are covering your expenses, you can just walk out on that job and never look back. So don’t go to Walmart and buy a new flatscreen TV, login to your broker account and buy some shares of Walmart (WMT). $750 is better spent on 10 shares of a company that’s going to pay you back $4.80 every quarter for doing nothing at all.

In some ways, a dividend stock portfolio is “Crappy Job Insurance.” Having that extra asset that pays you whether you woke up early or late, protects you from needing to work at a job you don’t want to forever.

At the end of a bad day, you probably just want to sit on the couch and “veg out.” It’s going to take whatever will power you have left, but get off the couch and exercise. Getting a good workout can really help improve your mood. Working out causes your brain to release endorphins, adrenaline, serotonin, and dopamine all of which make you feel more positive and happy. Plus, staying healthy is going to save you money later in life.

I wish I could tell you that I have an easy answer for dealing with bad days as a frugal investor. Unfortunately, there are going to be days that suck, but the truth is that the average American bad day is still way better than a good day in other parts of the world. Things could always be worse, but when we walk the difficult path of making the right choices, we can turn our lives around for a better day tomorrow.

I can’t say I really had high hopes for this experiment, but so far it’s not looking great. It’s far too soon to start judging results, but from the process alone, it’s not going smooth. I decided to break it into a split test. One site would be directed by me, and I would outsource individual parts. The other site would be outsourced from start to finish and I would put as little thought into it as possible.

The first site is on the topic of a specific diet, and would include recipes, affiliate links to cook books, and adSense ads. I have this site up and running with a free template that is built for adding recipes. The issue now is 1, adding recipes to the site, and 2, generating some traffic. I outsourced the initial content on fiverr.com and got well researched content that was horribly written. I spent about an hour correcting the grammar on these articles. I also outsourced the logo, and that came back fine.

The second site is my headache. The topic that was chosen was weight loss / fitness. Which is great, I can get behind that. The guy I outsourced to picked out the domain name, and a wordpress template and installed everything just fine. The big problem is that now there’s about 2 paragraphs worth of content and the rest is dummy text. There’s also no sign of areas for monetization. What was supposed to be a fire and forget project is now requiring my attention and effort. In the worst case scenario, I will take over the project and make it about building your home gym, which is a topic I’m passionate about.

So far both sites are under budget so I should be able to afford getting the next steps taken care of.

I’ve also decided to try another passive income stream. I’ve read good things about infobarrel.com. It’s a site where you can write articles about whatever topic you want and they’ll give you the lions share of the adSense revenue for that topic. Additionally, I found that you can link to amazon products and use an affiliate link (unconfirmed if they let you keep the affiliate part of the link). Anyways, I’ve heard that people can see about $0.50 per month per article if they do a good job, so I figured it was worth a shot. My goal is write at least 9 more articles and see how they compare to the effort I put into the niche sites over the next couple months.

Note: I’ve read that 1 in 4 articles that you include an affiliate link will actually be YOUR affiliate link. Which makes sense, it’s a free platform. This just limits the profitability.

As I often do on Mondays, I started thinking about what I want to do with my life. Normally in my free time, I either play or try to make video games. The thing about making games is that you pour your heart and soul into something for people that will try their best not to pay you for it and then hate you for it. So, I decided working on a sort of “side gig” might align best with my goals.

I’ve read good things about making a niche site, I can tell you from the analytics of this blog, that this site doesn’t have much traffic and isn’t much of a niche site. Considering the work I put into this site, I would want my niche site to be low maintenance. I came up with some goals for this project:

1. Do as little work as possible. Beyond research and basic wordpress setup, I want to outsource most of the effort. I will primarily be using Fiverr.

2. Budget: $100. Given that I intend to outsource most of the work, I also want to set a budget so that if it fails, it’s not a huge loss.

3. Fail Faster. This is an important lesson in development. No idea starts good, the faster you fail, the faster you make it to your good idea. So this niche site needs to be pushed out quickly so I can determine if it’s worth pursuing more sites.

I’ll keep you updated with my process as I’m doing it.

Time is both a blessing and a curse to the value investor.

As investors, the end goal of investing is almost always to have our investments pay out more than we need to spend. We achieve this by saving large portions of our income and investing it into dividend paying stocks (or at least that’s how I do it). Time is the most powerful force we rely on for growing our capital. Today, a $1000 position is probably only going to pay back $35 each year. However, after 10 years, given average dividend growth and reinvestment, that initial investment will be paying out something more like $80 each year.

We invest as a way to buy time in our future, time that does not need to be spent working for someone else. In a way, it’s a trade of time now, for time later.

The problem here is where many new investors lose focus. When you’re working toward delayed gratification, time can feel like it’s moving very slowly. This is a big problem I face personally.

It can easily feel like every day just drags as we try to make it to tomorrow. It’s what the naysayers of early retirement usually refer to in their arguments. That you’re not enjoying your life to the fullest while you’re young.

The difficult balance of life is that you should try to live like there’s no tomorrow while still planning for many tomorrows.

Even though I’m trying to live frugally, there’s no reason I can’t enjoy each day. Basically I’m saying You don’t need to spend money to enjoy your time, you need a hobby.

So, every 30 days, I’m going to pick an activity that I will try to do for 30 days to try and spice up my day to day life. 30 days is enough time to determine if an activity is a chore (like giving up sugar) or a hobby (like taking a picture every day). I’m calling this my 30 day challenge.

For my first 30 day challenge, I’m going to compete in an official rated competitive Pokemon match every day for 30 days.

Yeah, I realize that’s probably not what you expected from a 28 year old man that has a blog about investing. But I spent an ungodly amount of time training probably over 20 Pokemon for competitive battles, and have barely used them at all. So it’s time to reap those rewards.

I’ll probably get stomped pretty hard getting started, but I bet by the end, I’ll be a Pokemon badass.

If there is such a thing.

How about you? What do you want to do for the next 30 days to spice up your day to day life?

Let me know in the comments, and show some love by giving a like, +1, or share.

It’s that time of year again. When we make promises to ourselves to be better. It’s time to make some New Years Resolutions. I believe far more people fail their New Years Resolutions than succeed. The idea seems so good and so easy going into January, but once February rolls around, everyone loses steam. However, I still think it’s far more important to try and fail, than to give up from the start. So here we go, these are my goals for 2014.

At the end of 2013, we’ve had to face some major extra costs. We decided to get a used ’98 Jeep Grand Cherokee so we would have 2 cars for the Winter months. This set us back a few thousand dollars between getting it, registering it, and getting some small repairs. It’s still too soon to say if this purchase is going to be something we regret later, but the quality of life increase of having 2 vehicles will pay off pretty soon when my office moves to a new location (no more walking home for lunch).

So, the first thing that will need to happen in 2014, is we will need to get our finances back in order. In January, we plan on minimizing our food bill at the cost of temporary health. My wife and I try to eat pretty healthy, which means a lot of meat and veggies. We tend to break the rules on Saturday to maintain sanity, which usually consists of eating out and sometimes drinking with friends. Since we are currently healthier than we are financially stable, we’ll be eating as cheaply as possible, and cutting out the expensive weekend restaurant visits for at least the next month. After january, we should be financially stabilized and able to resume our healthy eating habits. Additionally, if we can get out of the habit of spending a lot on the weekends, we’ll be able to save more in the future as well.

I’ll try to share any good low budget recipes we find along the way. Hopefully, we can find ways to still make healthy food.

That first goal is important, because the second goal for 2014 is aggressive saving. We are aiming to invest at least $20,000 into our taxable account by the end of 2014. Our stretch goal here is 40% of our income (just under $26,000), but that may be out of reach as there are 2 weddings and 1 bachelor party (where I am the Best Man) that are happening this year.

You may be asking why we are investing in a taxable account. There are a few reasons. First, we are planning on buying a house within the next 2-3 years, which means we will need a decent load of cash for the down payment. Second, our long term goal is to retire early, and that is impossible if our savings are inaccessible until age 60+. Finally, liquidity is the essence of freedom. One reason, many investors hate real estate is that it’s so much work to turn your asset into cash. If we needed to access money in a Roth or traditional IRA, there would be hoops to jump through, and fees to pay on top of the taxes. Our economy is not in a state where a person can assume they won’t need to access their savings for 30+ years.

The final goal for 2014, is to achieve an average monthly dividend income of $50 per month going forward. Obviously our average monthly dividend income is going to be quite low while accumulating assets, so this is more of a goal for results we’ll see in 2015. I just want to be clear up front so I don’t get to December next year and have to say we failed this just because the goal was poorly worded.

How about you, what are your goals for 2014, Let me know in the comments!

Debt comes in many flavors: student loans, mortgages, credit card debt, car loans, etc. I talk a lot about how to invest when you’re debt free like me, but the reality is that I’m extremely lucky and a minority in modern day financial culture. I like to think of money like water; it can allow you to float, but you can also drown in it. When you are overloaded by debt, it can be easy to feel like you’re drowning and completely out of control. I’d like to provide whatever advice I can to help you start treading water, and someday even build a boat to float on.

First of all, debt is not a magical entity. It’s money you owe so you can have something you haven’t earned yet financially. That may sound condescending, and when it comes to a college education or a reasonable car (Camry = reasonable, Bentley = unreasonable), it’s not meant to be, you need those things to survive in our modern culture. The reason why I say it’s not magical is because there are very logical and real ways to make your way out of debt. So, here we go.

Don’t be too proud

Before you can get to work on your debt, you need to understand if your current lifestyle is sustainable. To do this, you’ll need to do a cash flow analysis on your monthly income and expenses. If you’re making more money than you’re spending, jump to the next step. If you’re losing money, it’s time to find some help. If you were drowning, would you be too proud to grab the hand of someone sitting in their cozy boat? You need to accept that your lifestyle is more lavish than you financially deserve. Stop eating out as much and learn to cook. Consider moving in with roommates or even your parents. The first step is to get your cash flow into positive territory.

Build a cushion

Before you start paying anything off, you’ll want to save about $1000 so that you have a cushion for your expenses each month. You can also do this as part of your budgeting exercise in the previous step. This step will help remove some of the paycheck to paycheck stress that might cloud your judgement.

The Debt Snowball

Credit for this technique belongs to Dave Ramsey. How this works is you find out which of your debts has the lowest balance. You will make the minimum payment on all of your debts except for that one. All of your extra cash each month should go towards paying off the debt with the lowest balance. Once you have that first one paid off, you can use the money that would have gone towards that account to pay off the next lowest balance. With each debt you pay off, you build momentum like a snowball falling down a hill.

Interest Rate Balancing

If you’re most interested in just getting out of debt, you can stick with the snowball method until you’re debt free. However, I believe there are some cases where debt is ok. I spend a lot of time building javascript calculators to answer my own financial questions of what the best strategies will be. I’ve found that if your investments are capable of yielding a greater return than the interest percentage on your debt, then you’re better off investing instead of paying off your debt early. For credit card debt, your interest rate is probably in the double digits, and that is going to be hard to beat, so definitely pay those off. For mortgages or student loans (most of the time) the interest rates on those debts are so low, that you can easily outperform them in quality dividend stocks.

Here’s an example. You owe $200,000 for a mortgage with a 4% APR on a 30 year term. You have $1000 each month with which you pay your mortgage minimum payment, and with the remainder you can either invest at an average yearly return of 7%, or use to pay off your mortgage faster. After 30 years, either way you will have your mortgage paid off, however, if you paid it off more quickly, and then invested all of the extra money afterwards, you’d have an investment balance of $31,681. If instead, you invested the extra money, making only the minimum payments, you’d end up with $55,426. So by investing early, you end up with $23,745 more than by paying off your mortgage faster.

Additionally, money you invest is more liquid than money that goes towards debt. Even though this strategy may seem controversial, it may be in your best interest. If you’re new to investing and aren’t confident that you can get a good enough return, don’t risk it. You should always consider your personal situation before adopting a financial plan from someone else.

How about you, are you underwater or floating? What’s your take on paying off debt early or investing extra capital?

I’m Kevin Drongowski. I’m not a self-help guru, or a financial expert. I’m not even especially well paid. I’m just a dude who likes video games and doesn’t want to work forever. I’m always trying to find a new way to get ahead in life, but the more I try, the more I just break even or worse. I’ve been pretty steadily employed full-time since 2008, and while there are certainly worse fates, I’d like to be free and financially independant some day. I don’t want to wow you with my hopes and dreams of traveling the world or owning a successful business, because I honestly don’t care that much about those things. My ideal day would go something like this, I wake up at 10:00 AM, take a shower, cook some food and play video games until I go to sleep again. I care about money to afford laziness.

To me, money is survival. In the way that a cat has claws to kill its prey for food, we have money to buy the food and shelter we need to survive. So wealth for us is like the cat having a pile of meat to eat at it’s leisure. Which means passive income is like a robot that automatically kills prey for the cat while the cat plays Super Mario Bros. That is my goal, to create a passive income robot that allows me to afford my preferred lazy lifestyle. The most successful strategy I’ve found for this is dividend growth stocks, but before I get into that I’ll catch you up on the other strategies I’ve tried.

First, there was a webcomic. I wrote a webcomic for a short period with the intention of merchandising and collecting ad revenue. Here’s the truth, no matter what ad provider you use, you’re not going to make more than $30/month from ad revenue unless you have substantial traffic. Needless to say, my inside jokes, that only my close friends got, were not generating a lot of traffic. When you consider the time I spent working on it, and the cost of website hosting, it’s safe to say I lost money on the project overall.

Next was the facebook game. After the dive into web development with the webcomic, I learned php and mysql. Using these newly developed skills I built a browser game with some cool flash elements. The game was fun, but ultimately did not build a good enough following to bring in any income from microtransactions or advertising. Again, given the amount of time I put into it, this one was another loss.

During that time I was able to save up some money by living relatively frugally. I decided to start trying to play the stock market with that money. I bought some books on investing and tried my hand at day trading. Some days I’d make $200, other days I’d lose $600, this ultimately turned into another losing strategy. Over time I tried to lengthen the term of those investments and only invest in companies I believed were going to go up in value. While holding one such company (Discover), I saw that I had earned a dividend on one of my statements. I had no idea what a dividend was at the time. So after doing some research and learning about dividends, I started buying up high dividend yielding stocks. However, I still ended up losing money more often than not.

After a lot more research and experimentation, I’ve finally started seeing reliable gains. I’d had no clue how to properly value a stock up until then. All of the numbers made no sense and it seemed like it was impossible to really apply. After all, even if you evaluate what price you would like to buy a stock at, that doesn’t mean it will ever trade at that price. The key is to focus on a reliable and rising dividend, and do your best to ignore market noise. Embracing this strategy was how I finally started to profit off of the stock market.

Right now, I have 401ks and Roth IRAs from employers and a rental property in Florida, but my true focus is on my taxable individual stock account and the dividends it produces. When my dividends can cover my living expenses, I will be free to remove the shackles of employment, and live the lifestyle I want. It’s not glamorous, and dividend stocks aren’t sexy, but this is my journey, and I encourage you to join me.

I wasn’t born a natural investor, and I’m not going to “get rich quick.” However, I am going to be a millionaire some day, and I hope you can learn from my mistakes and become rich yourself some day as well. Even then, 1 million dollars isn’t my goal. My goal is to have enough passive dividend income to pay bills and allow me to sleep in and play video games. Just don’t tell my wife that.

Kevin on Google+