Category Archives: Financial Freedom

how control over finances help you gain financial independence

Financial Freedom

Debt ceiling bill signed: U.S. will not default

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America will be able to pay its bills.

The House of Representatives and Senate voted to pass the bill and President Biden signed it into law today.

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The market has been on a tear once the debt-ceiling bill passed.

The Dow went up 700 points on Friday and Google is up, way up!

As of 30 May, GOOGL stock price was up almost 40% year-to-date. That is great news for investors in the stock. GOOGL opened 2020 at $67.42 on 2 January 2020 and would close at $86.81 on 31 December, a 28% rise.

In its Q4 2021 earnings report, Alphabet announced its decision of a 20-for-1 stock split by way of a one-time special dividend on each share of the company’s Class A, Class B and Class C stock. Stockholders recorded in the company’s books at the close of business on 1 July 2022 received 19 additional shares of the same class of stock that they already held by the close of 15 July 2022.

Keep in mind that GOOGL was trading at $2,200 a share just before the split. The stock closed at $2,255.34 on 15 July 2022 and opened at a split-adjusted price of $112.64 on 18 July.

The reason they proposed the 20-for-1 was to make shares more accessible. If you invested $10,000 in Google’s IPO is more than $300,000!

Although, that much exposure to one stock can be pretty risky as anything over 10% of your portfolio can result in more losses than an investor would like.

That would mean you would need to have a $3 million-dollar portfolio to have this type of exposure to one stock. You may likely want to diversity in index funds such as the VTSAX or VFIAX to keep things more level.

My suggestion is now that we have averted a financial meltdown is to go and buy some stock. The upside can be tremendous if the market continues its upward trajectory.

The easiest method to increase your stock holdings and limit the risk is to invest in a total stock market fund like the VTSAX. It has a market cap of over $1 trillion.

For those investors that could not afford to buy GOOGL or Amazon at their peak price of over $2,000, this is your moment.

Both AMZN and GOOGL are poised to go higher with more people online than ever.

What makes GOOGL special is their powerful search engine. GOOGL handles over 90% of all search queries worldwide, Google is dominating the global search engine market share.

There are 8 billion people on the planet. An estimated 37 per cent of the world’s population – or 2.9 billion people – have still never, ever used the Internet. Therefore, GOOGL has no where to go but up. Get a ticket to this ride as fast as you can.

Personally, I feel the stock is undervalued.

Maybe that is why the company board of directors just approved a $70 billion-dollar buyback in April of this year. What that spells for investors…Cha Ching!

GOOGL also owns YouTube, which just closed on an NFL Sunday ticket access deal worth $2.5 billion. They are making money hand over fist.

Their balance sheet is so healthy because they are flush with cash and so little debt. Alphabet had $12.9 billion in debt in December 2022; about the same as the year before. However, it does have $113.8billion in cash offsetting this, leading to net cash of $100.9 billion.

That is why they can afford a $70 billion dollar stock buyback. Typically, when this occurs the stock price goes up in value due to less shares being available.

Your girl has got in on this by buying shares throughout the last year. Even with a modest stock split in the future, I would own thousands of shares.

At that point, I would likely diversify some this into index funds to limit my exposure to losses in case the market does a swan dive.

As of 30 May, according to Coin Price Forecast, Alphabet price could hit $155 by the end of 2023 and then might reach $163 by the end of 2024. Analysts estimate it could rise to $219 within the year of 2025, and was anticipated to reach $252 in 2026, $302 in 2029 and $362 in 2033.

GOOGL is minting millionaires.

GOOGL can help facilitate the American Dream.

Instead of hoop dreams or being a movie star or Rockstar, you can be a financial Rockstar. You can be a stockstar!

Therefore, if you have champagne wishes and caviar dreams, then this is the place to be.

Financial Freedom, Investing

$700 monthly new car payment now costs as much as one semester of room and board at college

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Sheer driving pleasure. – BMW slogan

The automakers at BMW has been using this slogan since 1973 and it is featured on all advertising for BMW automobiles and motorcycles.

Their tagline explicitly uses the word pleasure to describe driving. And if you want that pleasure its’s going to cost you, at a premium.

New cars are now averaging $700 per month.

The University of Maryland College Park (UMD) has an annual Room and Board that is about this cost of $700 per month for that new car: Room (Standard 2-person w/AC, includes Telecom fee) $8,860.

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For some perspective, keep in mind that $700 times 12 months = $8,400.

A mere $260 more will keep you housed and fed on a university campus at the UMD, which is considered a Public Ivy, for an entire year.

Penn State and other public and private colleges are even higher.

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When looking at these new car prices, you may see why some Facebook engineers chose to live in their cars rather than pay $3,000 rent on top of that car payment.

Most folks just do not have $3,000 per month to shell out on just rent and car payments, let alone $3,700.

I spill all the tea on my new car story here.

Therefore, before you decide to start writing that check out for $700 every month, I want you to stop and consider this. Gas prices are topping $3 per gallon. Insurance keeps on moving on up like The Jefferson’s!

Expenses for the average joe in the middles class keeps on going higher and seems never ending.

Instead of paying $8,400 a year to floss in a new BMW, you can invest that money instead.

Let’s say the car payment will last you seven years. During that time if you put that money into stocks you could have a nice head start on your retirement savings. That sounds real good considering the average portfolio is worth about $30,000 for folks under 30.

Please also take note that I said to invest in stocks and not cryptocurrency. No Dogecoin, Bitcoin, Ethereum, Tether or Binance USD. After the FTX bankruptcy, no one can call these investments safe.

A great story on the FTX fallout was written on White Coat Investor and can be read at this link. Sam Bankman-Fried’s (SBF) net worth peaked at $26 billion and then sank to $100,000. This fallout was one of the worst destroyers of wealth in all of human history.

Nevertheless, I digress.

Going back to the new car payment being invested instead, over a seven-year period with a rate of return (ROI) of 10%, you could have $87,661 in your 401(k).

Please note that the ROI of 10% is doable as that is what the stock market has averaged. The historical average yearly return of the S&P 500 is 10.356% over the last 100 years, as of end of November 2022. This assumes dividends are reinvested.

If you decide not to invest another penny, over 26 years, you would have 1,044,764. Not buying a new car can literally make you a millionaire.

Maybe that is why Jim Cramer decided to keep investing in stocks even though he couldn’t afford rent and had to live in his car. He knew what it could mean for his future. By the age of 45, he had amassed a $1.5 million dollar nest egg in his brokerage accounts.

Remember those people on Pimp my ride from the MTV show. Wonder if they still even have those cars from back in 2008.

With all the money they spent on custom rims and tricked out this and that, if even one car was repossessed, it was all for naught! #*k cars!!

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Buy the product. Own the business. Get the stock. Let those dividends pay for your future car with cold hard cash.

Take a lesson straight out of South Park’s playbook.

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However, instead of foreign stocks, I prefer to just stick with domestic, as most companies are international and provide you with global exposure.

You just have to decide which one you want more: a new car or financial freedom sooner rather than later.

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Financial Freedom, Retirement

Couple Making $500,000 has no Retirement Savings

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After reading about a couple earning half a million dollars, I could not believe they did not have anything saved for retirement. Especially considering the couple were ages 65 and 59.

You don’t just start in at the top making that kind of money. Oh no. You have to toil in the salt mines for YEARS to make that kind of dough!

All their money is tied up in their home. They have a home worth a million dollars but a stock portfolio worth $0.

That is the type conundrum that just baffles those that are way lower on the income scale.

That would mean making $500,00 for just four years, they have earned $2 million dollars and not ONE RED CENT went to their retirement accounts.

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I didn’t read anything about owning any vacation or rental property, old savings bonds, having a few shares in Apple stock, nada.

This couple is burning through money faster than those kids were buying chocolate bars in Willy Wonka. And if you saw the 1971 movie, you saw what pandemonium that was.

I mean where is the money going?

There has to be some sort of financial household accountability and management. Once all the expenses are tracked, you can look for ways to cut. At this income level, I find it hard to believe they do not have a financial advisor or accountant.

This couple could save a small fortune, if they sold their home, ate out less, and sold the pricey cars.

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THE STRUGGLE IS REALLY NONEXISTENT

As soon as they earn the money, its spent. We have a serious cash flow problem here. We gotta stop the bleeding. This is a sinking financial ship and we have to plug those leaks. There has to be ways to save.

The couple own a home that will be paid for in 7 years, and at this time is worth around $1.4 million. They stated, “If we sold it tomorrow, we could net $1 million in equity. Home prices are going up faster , so it would be difficult to find a home for less than $750,000 (if we were lucky).”

One word: move.

Drop the financial anchor that is your home and move on. Is this home really worth you living today with nothing?

Take the $1 million in equity and but a modest $300,000 home with cash, then pay off any other debt you owe and start maxing put your retirement accounts. Keep a minimum $100,000 cash high yield savings account and start investing the rest.

If the couple does this, they could stash away $22,500 in a 401(k) and $7,000 in a spousal IRA for 7 years and have over $300,000 with the stock market average return of 10%.

If they can max out two 401k’s, then that would be the equivalent to investing $45,000 per year. Using the same factors as above, that would net the couple a col almost half-a-million ($500k) in retirement savings.

Just simple math.

Careers, Financial Freedom

How to become a Millionaire on One Year of Overtime Pay

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Top of the morning to you! Happy Monday! On this sunny day in December, Christmas is a mere 13 days away. Some people are already receiving excellent Christmas gifts in the form of overtime pay.

Making the rounds this morning on the news is sanitation workers making an eye-popping $300,000 in NYC!

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And I thought having that in my retirement accounts was good news. That is a Merry Christmas present indeed. Let’s get right to it!

I know some of you out there haven’t heard from me in the blogosphere for some time now. But you know what, I feel like Dr. Dre in Forgot About Dre.

I’ve been busy behind the scenes trying to get this blog off and my finances to newer heights! I never left you.

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And to prove that I’m still here back better and stronger than ever, I will be posting some new articles here in the near future about climbing that millionaire ladder and moving on up to a deluxe apartment in the sky.

The stock market is minting millionaires every day. Let Mr. Market make you richer whilst you sit back and sip Mojitos letting your hard earned dollars work for you. Let the money flock to you like ducks to water or a moth to a flame.

Thanks to the IRS tax code, you can now contribute $20,500 in 2022 to your 401k. I’m going to ride that pony into the million-dollar sunset. TE-HEY! You should do the same. Save until it hurts. Invest until you owe so little in taxes you rival the tax returns of Jeff Bezos and Amazon for the last few year paying $0 in taxes.

That is because the more you invest, the less you pay in income taxes. But enough about all that. Let’s talk about these $300,000 sanitation workers shall we?

First off, I have to take you all back down memory lane. Remember that guy that made $270,000 being a transit janitor in San Francisco. No? Let me post that article here to jog your memories. It was all over the news. I especially remember it being in the Washington Post. Which is also owned by Amazon founder Jeff Bezos. Check out the link A BART janitor made $270,000 in a year and some people are wondering why.

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That was 2016. Many were left scratching their heads wondering just how could someone sign up for overtime almost every day, work 361 days in the year, and earn $162,000 in overtime pay. Not me. The system allowed no limit on overtime, so he got it. End of story.

Let’s say that after taxes was able to bank enough to max out his 401k for the next five years. In 2016, the IRS contribution limit was $18,000.

So, hypothetically speaking, if you invested that same amount annually for five years would invest that would be $90,000 cash in the market. During that time, $18,000 per year could grow into $124,431.47. If he let that money sit in the market without adding another dime of his base pay or overtime, that could turn into $1,003,205 over 20 years. He would become a millionaire based on one year of overtime pay.

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Now let’s fast forward to 2021. Sanitation workers in NYC have earned upwards of $300,000 and receiving $153,000 in overtime pay. Cha-ching! Bank that money baby! They too can turn this windfall into riches by simply investing this money.

The NASDAQ has gone up 750% since 2009. No time like the present to invest. Brokerages have not only gone to $0 trade commissions, but companies have also recorded record high turnout in 2020 and 2021 of new customers entering the market and signing up on their platforms.

If these overtime kings put that money to work, they can make a fortune.

All this from one year of overtime pay. With many companies not even offering overtime, that is awesome that these guys are able to not only make a living but even build wealth off of it. Therefore, college admissions counselors everywhere beware! Haha! No $100,000 MBA required!

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Financial Freedom, Financial Independence, Retirement, Self-Made Millionaires, Wealth

Coasting to FI: Compounding my way to Coast FIRE and $1 Million

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“One minute of patience, ten years of peace.”  – Greek Proverb

“Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.” —John Quincy

It was a hot summer day. Same as any other. I was busy working as usual.

I have been working so hard since I was like 5 years old. That was the age that I decided I was going to be rich.

I used to go outside and play on the playground every day. Those were some of the most important days of my life. I learned so much on the playground. The virtue in helping others, sharing, caring, making friends, solving conflicts and exercise.

Nothing came easy. You had to earn every inch when playing sports with other kids whether it was jumping rope or running. You played to win.

I was always pretty good at academics so I put a lot of my energy into that. I figured that could be my path to riches. It turns out I was right.

I was working 8-hour days and studying up to 8 hours a day in college. At one point, just a couple years ago I was reading 25-50 books a year.

I had a hunger for knowledge; especially, personal finance.

Once I learned what compound interest was, I knew I found my road to wealth. I would save and invest money consistently until interest would do the rest for me on my journey to $1 million dollars.

I had been grinding it out so long that sometimes the days blurred and I feel asleep at night from pure exhaustion. Then one day I looked up and realized I had made it to Coast FIRE.

Coast FI refers to saving enough to “coast” to financial independence. This allows participants in this version of FIRE (financial independence, retire early) to take jobs with less stress or pay due to reaching a certain amount of money needed to retire earlier than age 65.

Coast FIRE is a sub-genre of this early retirement movement. This version calls for having enough invested or saved so that without adding another penny of contributions to your retirement portfolio it will still grow to fully support retiring at a traditional retirement age. Your nest egg, simply put, has reached a tipping point so that it will “coast” to the target amount needed for retirement.

People who have successfully achieved their Coast FIRE (like me) still need to work, but they only work to cover current living expenses – not to build up their savings or investments for a future retirement.

The thing about Coasting to FI is that you must first do this before you can get to any of the other versions of complete financial independence; never having to work again – such as Fat FIRE, Lean FIRE, or Barista FIRE. Where compounding does the heavy lifting for you.

FIRE requires you to save up at least 25 times your anticipated annual spending and you have got a 97% or better chance of that money lasting at least thirty years. 

Fat FIRE typically means a budget of $100,000 a year, which requires a retirement savings of $2.5 million.

Lean FIRE typically involves being frugal and living in a lower-cost area, or even other countries with a lower cost of living with a budget of $30,000-$50,000 a year, which can require a retirement savings of a minimum $500,000 to $750,000.  

Barista FIRE is a hybrid between Fat FIRE And Lean FIRE. Barista FIRE is being able to retire before the conventional age of 60+, but taking on a part-time job for supplemental income and potentially health insurance. You will need to have at least $1 million in retirement accounts.

Coast FIRE requires you to save a certain dollar amount that will allow you to coast to FI such as saving $200,00, which will allow you to coast to $1 million in 15 years with a 10% rate of return.

 Coast FIRE formula for determining how large the participant’s nest egg must grow would begin with a regular FIRE number (estimated in the example below at 25 times annual spending of $50,000). In the formula below, note that “Years to grow” is an exponent.

25 x $50,000 / (1 + annual growth rate)Years to grow = Coast FIRE number

Suppose someone estimates they need 30 years to reach their Coast FIRE number and an average annual growth rate over those 30 years of 7%. The calculation would then be:

$1,250,000 / (1 + 0.07)30 years = $164,209

In this example, the Coast FIRE number would be $164,209, which would grow over 30 years (given the above-stated estimates) to the target figure (or regular FIRE number) of $1,250,000.

I like to use the $1,000,000 target for my estimate. The calculation would then be:

$1,000,000 / (1 + 0.07)30 years = $131,367

If you want to retire sooner, then just see what a different target number will do or by shortening the number of years.

For example, $1,000,000 / (1 + 0.07)20 years = $258,419. That means your Coast FIRE number would be $258,419.

Once you reach this dollar amount, you could stop investing in your retirement accounts and reach $1 million in 20 years. The higher the compound interest rate, the quicker you are able to get out of the rat race.

Once I hit $300,000 in cash and investments, I knew that with a 10% rate of return that it could turn into $1 million in 12.5 years.

$1,000,000 / (1 + 0.10)12.5 years = $303,802.

Paying off debt faster and more aggressively plus investing those funds and more could allow folks like me to get to $1 million in less than a decade.

I can now put on my eye mask, kick back and coast to $1 million. If I can do it, then anyone can.

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I started with $0 in retirement savings. I started stashing money into my 401(k) and then opened a Roth IRA to start saving even more.

If you want to coast to FI, then let compound interest do the heavy lifting for you, save $100k because the first $100k is the hardest, and allow it to coast you to $1M in 30 years.

Happy wealth coasting!

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Financial Freedom, Financial Independence, Investing, Retirement, Wealth

Flip of a Coin: How I Decided to Own A $250K 401(K) Vs A $250k Mortgage

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This is not a post for the faint of heart. So some of you out there may need to do what you did when the nurse swabbed your arm with alcohol right before she gave you the Covid-19 shot, turn your head away and close your eyes!

It was years ago, but I had to make a call. I had to make an executive decision. Would I like to buy a $250,000 home or become a 401(k) Quarter of a Millionaire.

It was almost like flipping a coin. Do you choose heads or tails?

Heads and be a $250k homeowner.

By the way, home values over 30 years have risen about 4% on average but stocks have been able to return 10% over that same time period.

Now back to the coin toss.

Tails and have $250k, that’s right a quarter of a million bucks, in your 401(k).

I chose not to go with the path of least resistance, which is the American dream of being a homeowner, and to put my money in stocks. Best decision I ever made.

After watching the housing crash or 2008-09, it dawned on me to put some money into businesses that pay you dividends instead of a mortgage that you have to pay. Missing even a single payment on a mortgage and never being able to catch up could put you on the short list to foreclosure. Nobody wants that.

Fast forward 10 years later and Covid-19 is not only derailing retirement savings but also increasing the likelihood that many renters will be evicted.

According to CNBC, 20% of renters in America are behind on rent and owe an astounding $57.3 billion. The average amount owed by each renter is $6,000 and they are a minimum of three months behind.

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Once you get that far in arrears, rental companies and landlords are quick to start the eviction process.

Especially, mom and pop landlords that cannot afford the losses. They depend on this income to pay their own bills and fund their retirements. I knew after watching millions of Americans lose their homes to foreclosure in 2009 that I did not want to be in that predicament.

Therefore, I made the conscious decision to keep fixed low housing costs and to put my money into stocks. I put my money into index funds because they consist of thousands of stocks. All those businesses are not going to go bankrupt at the same time so it gives your money some security as opposed to putting all your money in one stock and then you lose everything.

The S&P 500 and other indexes will remove any stock that is not meeting its standards. Therefore, you do not have to do this on your own with stock picking. This also insures that your money stays invested in firms with a good balance sheet as the ones that are not pulling their weight are dropped from the index. Thus, you do not lose all your money as you would being invested with only one stock or placing your bets in speculative investments like cryptocurrency and bitcoin.

I actually know someone who says they invested all their money in bitcoin and lost all of their money! What were they thinking? If you are going to invest in bitcoin, then it with money, you can afford to lose and only invest more than 5% of your savings. That is all the risk that is adequate with bitcoin, in my opinion.

Not enough to money to become a bitcoin millionaire, but also not enough to lose your life savings, your home and all your possession in case you bet the farm on a losing investment.

Let us learn from the recently deceased creator of McAfee software founder who invested $25 million in Lehman Brothers bonds and lost every penny after they collapsed and went bankrupt in 2008.

You can read more about the demise of Lehman Brothers in my post called Don’t Trust the Commission-Based Advisor in Wall St Cubicle 23

I decided to just put my money into the VTSAX because it includes the total stock market. Want some Tesla stock? Drop some money in the VTSAX. It will only cost you $107.

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Instead of buying stocks one by one, you can just get them all for one price. That way you do not have to pay $685 for one share of Tesla.

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Don’t even get me started on the S&P 500. One share in this stock will set you back $4,267.

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If you have that kind of money just burning a hole in your pocket, then be my guest and buy some. However, if you want a piece of the whole market then just start buying the VTSAX.

I sleep like a baby knowing that my money just can’t fall to zero because the every stock in the fund will not blow up overnight. Even if businesses tank, the fund will correct this by replacing them with a better stock, and I still keep making my money.

I think of it like this, a home you have to feed but your 401(k) feeds you.

As a homeowner, you cannot realize gains until you sell. Therefore, you must feed the beast until you do!

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Considering that most American homeowners only stay in their homes for an average of 9 years, all the money spent on maintenance and repairs is burnt if you are foreclosed on. However, according to Fidelity, many 401(k) millionaires keep their accounts for open for 20-30 years to amass that type of fortune. That means people are holding on to stocks longer than homes!

Therefore, on my path to millionaire status, I decided to go for stocks over real estate. Don’t get me wrong, you can make a fortune in real estate, but you have to maintain the property until you sell. I can make my fortune in index funds simply by breathing and automatic investing.

Seeing and listening to the stress of homeownership versus the ease of index investing I think I made a good choice going with stocks. My low housing costs allow me to invest more. This also allows you to pay off debt faster and travel more. However, it is always your call. This is just my 2 cents.

I mean who wouldn’t want to be a Quarter of a Millionaire. I’ll take that any day of the week over being broke!

And just so you know, if you let that money sit and ride it out in the market, you would have $1,000,000 in 14.5 years with a 10% return. That is without adding another cent.

How many homes that were bought for $250k do you think will be worth one million in the same amount of time? None.

I have no problem at all with being a 401(k) millionaire. None whatsoever!