Monthly Archives: June 2021

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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House, Garage, Driveway, Architecture

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!

take my money gif - Flywheel Coworking

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!

Budgeting, Retirement

How I Paid Off $85,000 of Debt

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Accounting, Report, Credit Card, Payment

It was a dark and stormy night in the bayou. No wait…I’m just joshing you. Ha ha! This story doesn’t start off like a ghost story you tell beside the campfire or even in a bayou. I mean who do I look like, Bayou Billy?

For those who don’t know who that is, Bayou Billy is a fictional character in an NES game from 1988.

Adventures of Bayou Billy ROM Download for NES

As a 90’s kid, I liked playing all types of Nintendo games. What I loved about video games is that not only are they entertaining and fun to play, but they teach you critical thinking and problem solving skills as well. Nevertheless, I digress. Now back to how I paid off this $85k of debt.

Paying down massive amounts of debt involves sacrifice, effort, planning, hard work and fortitude. It doesn’t really happen by accident or luck It is consistent effort over time to keep paying your debt obligation while at the same time not continuing to borrow more of it. This is what I had to do to make it happen.

The number one thing I had to figure out was how much I owed. Opening up bank and credit card statements showed me this. I had to get this debt off by back: a $20,000 personal loan, $30,000 car loan, various credit card, and other debt of $35,000.

Those credit card statements showing me how much to pay over three years before it is paid in full really motivated me. Therefore, I would just put my head down and work. I worked on paying off one debt at a time.

Then I would go to the next one and concentrate all my time and energy on that one until it was gone. It took more than eight years to pay off all that debt.

I had to pay $448.65 monthly on my car note, $333 monthly on my personal loan, and additional over $500 on the other debt. Paying all that money out every month motivated me to do two things: 1) Not to get any more personal loans; and 2) Not to get anymore car loans.

I paid off my car in 2009. I am happy to report that as of 2021, I have not had another car note since. I kept my old car for 17 years total and then the next car I bought, I paid cash for it.

Instead of siphoning off my money to service debt, I began to invest that money in myself. I went back to school and starting dumping my money in my retirement accounts. Got an extra $5. Put in in the Roth IRA. Got a raise or bonus. Put more money in my 401(k).

All these years later and I am still contributing to my retirement accounts.

I have read more than enough articles on the retirement crisis and the shortage in Americans retirement accounts to know I had better take this seriously. I didn’t want to wake up one day and be 50 with no money saved for my golden years.

I know that those years feel like they’re in a galaxy far, far away, but trust me, no one stays young forever.

Zeit time galaxy GIF - Find on GIFER

I want you to protect your 401(k) as Luke Skywalker protected Princess Leia in Star Wars.

Debt are the storm troopers. Your ability to avoid debt is your use of your strong will over your spending. Your checkbook is your light saber.

Your control over how you wield these funds is your Jedi mind trick over all those who try to part you from your money.

I hope that this post helps awaken the sleeping giant within that lets you choose financial freedom over spending.

May the fiscal force be with you.