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Financial Independence, Saving, Wealth

Forget casinos, bet on yourself

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“There is a gigantic difference between earning a great deal of money and being rich.” —Marlene Dietrich

You bet there is. I am a firm believer in being rich in assets. Those are the things that will help you build wealth. They attract money to you.

I once read a wealthy gentleman online state he wants to be cash poor and asset rich.

Basically, he is looking to have more assets than a fat paycheck. He knows money can slip through your fingers. Assets do not easily slip away.

The bigger the paycheck means the higher the taxes you pay Uncle Sam. In contrast, assets usually go up in value and earn interest over time. Capital gains tax is lower than income taxes.

So, if you want to bet the farm, then put it all on staying in the black and not the red.

CASINOS ARE NOT WHERE THE WEALTHY ARE

I know you see all the television shows and advertisements telling you to go to Vegas. However, that is just a way to get you there to spend money. Most wealthy folks are not rolling the dice with their finances.

Casinos are designed to separate you from your money. Just like subscriptions. Read my posts Do not cash out your retirement accounts and  America is the land of subscriptions.

I have read enough blogs and books to know that you must hang around like-minded people.

Motivational speaker Jim Rohn said, “You’re the average of the five people spend the most time with.” And so is your net worth.

We are influenced by those we associate with. These relationships over time can have a profound effect on our lives.

Therefore, you must choose wisely when it comes to friends, business partners, and spouses.

The wealthy are about building assets. Therefore, you are not likely to see them at the casino at four o’clock on a Monday afternoon. They are out volunteering, networking, and closing business deals.

HOW DO CASINOS MAKE MONEY

A Canadian study stated that 75% of customers provide only 4% of casino revenues. It’s the habitual gambler that keeps the casino in business.

If you ever saw Mark Wahlberg in The Gambler, then you know who I’m talking about.

Computer gaming and slot machines are all the rage when it comes to gambling.

Most players lose more than they win. I don’t like those odds. Therefore, I do not gamble.

That means people with gambling addictions are the most vulnerable. Or you can become addicted after getting a taste of winning like in the film 21.

Slot machines are, like credit, addictive. Casinos actually can make you poorer. This exacerbates inequality.

CASINOS WILL HELP THE ECONOMY RIGHT?

Not so fast. Let’s take a look at Atlantic City.

Back in 1977, casino advocates made promises that casinos would help give the economy a boost by providing jobs. Don’t get me wrong, they did provide jobs. However, the surrounding local business owners did not get the foot traffic coming into the casinos.

The money that casinos make, stays with them.

Many local businesses had to close up shop. The retail economy collapsed all around Atlantic Avenue in New Jersey. Several casinos have actually shut down since 2014. That means jobs were lost not gained.

HOW TO BET ON YOURSELF

Devote all your time, money, and resources into yourself.

Use your hard earned money to invest in your education, training, and business.

When I was watching David Tutera plan those weddings on television, I learned he wasn’t doing this for, in the illustrious words of Sia, cheap thrills. He did it for a living. And earned good enough money to have a nice home, wardrobe, and chauffeur.

David started party planning and entertaining over 20 years ago. He just invested his time and money into himself. Eventually, he found what he was good at and then he just stuck with it.

There are countless tales of people out there that have found a skill they are good at, practiced and developed it, then went out and started earning a living at it.

Read up on some biographies. See for yourself. I recommend reading anyone you have an interest in or trailblazers such as Gloria Steinem, Arnold Schwarzenegger, Franklin Roosevelt, Charlie Chaplin, Oprah Winfrey, Winston Churchill, or Nelson Mandela.

WHAT CAN YOU DO NOW?

First, I feel people need to assess their situation. For example, when I was growing up I noticed that a lot of kids were not very into studying and really focused on their academics. However, many wealthy people I saw on television always advocated for education.

I figured, why not listen to other successful people?

I started studying and reading more. Especially, thanks to shows like Reading Rainbow hosted by Star Trek’s Next Generation alum LaVar Burton. I would go to the Book Mobile and get tons of books.

Much of my focus was less on having fun and more on learning. Saturday mornings were spent reading on my parent’s couch. Sunday afternoons were spent reading the comics and learning new things and vocabulary words.

I invested lots of time and money into my education and health.

And all of this paid off in spades.

I have four retirement accounts, a home, a car (no monthly payment), and save and invest upwards of 50% of my income.

It took me over a decade to build those things. But it all started with getting an education.

Sure, college helped, but it was sheer grit, discipline and determination that got me where I am today.

THE FUTURE MR. OR MRS. FI

If you want to have a chance at financial independence, I suggest you do the following:

  • Focus on learning more about money and finance
  • Stay away from debt
  • Get a good education (the best you can afford)
  • Pay for cars and appliances in cash
  • Opt for a 15-year mortgage
  • Stay away from vices (narcotics, alcohol, gambling, shopping)
  • Hang around like-minded people
  • Save 20% or more of your income
  • Invest 15% or more of your income

If you can do at least two of the items listed here, you have got a shot at making it into the top 10% of households and becoming financially independent.

Financial Freedom, Financial Independence, Investing, Real Estate, Saving, Wealth

How not to be house rich, cash poor

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“If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed.” —Edmund Burke

I remember watching an episode of Property Brothers and they were telling this couple that you do not want to spend too much or overspend on a home and end up being house rich and cash poor.

They instead wanted the couple to buy a fixer-upper, do some sweat equity, renovate the home, and put that money into their pockets.

Basically, when you buy a turn-key home, the work has already been done and you are paying the homeowners for the money they put into the home on renovations.

However, then you buy the house at a markup.

This is due to the fact that they may pay $20,000 for renovations and then the property may increase in value by $40,000 or double what they paid. Thus, allowing them to increase the purchase price of the property, ergo you pay them to renovate.

That’s pretty steep for move-in-ready.

If you do the work yourself, you get to keep the value that the home increases by.

This means buying a fixer-upper for $300,000 and putting in $20,000 for renovations will push the home value to $340,000 and let you keep the $20k in equity for yourself instead of putting it in someone else’s pocket.

If you read my last post, Save $10,000 by Avoiding PMI, then you know I am all about saving that paper.

So, let me show you how not to be cash poor, but house rich.

WHAT DOES HOUSE RICH, CASH POOR MEAN?

According to Investopedia, “house poor is a situation that describes a person who spends a large proportion of his or her total income on home ownership, including mortgage payments, property taxes, maintenance and utilities.”

Basically, you are paying more for your home than you can afford or simply buying too much home.

If you have to pay more than 40% of your income for your dwelling, then you will become cash poor.

Matter of fact, if the value of your home decreases, you can be both house and cash poor.

When you are house rich that means all your money or wealth is tied up in your home. The home equity may be something like $150,000, but you only have $1,500 in the bank. That is not even enough to cover one month’s mortgage payment!

https://twitter.com/AP_Lifestyles/status/1051911392704499713

In order to shift this, you would want $40,000 in the bank, and to owe less than $150k on your home. That $40k would be enough to pay one year’s worth of expenses including mortgage payments ($1,600 x 12 = $19,200).

You would need a fixed rate mortgage to help you do this.

STAY AWAY FROM VARIABLE RATE LOANS

The ARM, or “adjustable rate mortgage” loan is too dangerous. Any loan product that can change at the drop of a hat and without a moment’s notice is too risky.

Let’s think about this for a second. Why is anything at a drop of a hat so bad? Well, did you ever see the movie Tombstone?

The idiom is likely to have come from the Old West, when duels would begin with a signal consisting of a man grabbing his hat and thrusting it toward the ground, before weapons are drawn.

Is this any way you want any part of your life to be lived?! Absolutely, not.

Entertaining in the movies sure, but not for real life.

This type of trickery should be left out of the equation.

First, lenders approve you for wayyy too much. Second, they tell you it’s okay to only pay the interest when it’s really not. As you cannot get out of debt, without paying off the principal of a loan.

And going for the trifecta of trickery, the third thing lenders do, and this is the hat trick, your mortgage payments jump so high Bryce Harper couldn’t catch it!

Your mortgage payments spikes upward too sharply for most folks to keep up.

A reasonable $1,600 mortgage payment could reset and go up to $2,400 in a single month!

That’s no joke.

I had a conversation with someone this actually happened to. Shocks like this are hard for most people to fathom and continue to live comfortably.

A fixed rate loan allows you to plan the monthly budget in advance.

When you how much you monthly nut has to cover, you are just better off.

HOW TO BE CASH RICH

Buying a home for less than you can afford is a start.

If you are approved for $400,000, then slash this amount by 25%. This equals $400k x 0.25 = $100,000!

You heard me. Then bank says $400k, and then you say:  I’ll go $300k.

In one fell swoop, you both cut the amount of home you buy and monthly payment by 25%

You then take that $100,000 and over the course of the 15, 20, or 30 years you are paying your mortgage, you put this same amount into mutual funds.

You could do the S&P 500 index. Do whatever you want.

The goals are to simultaneously invest that money and pay down your mortgage.

For instance, that $100k over 30 years translates to investing $277 per month for 360 months. That would allow you to save anywhere from $500,000 to over $1 million depending on your rate of return through compound interest.

That means over a 30 year time period you have paid off a worth an estimated $300,000 or possibly more as home value may increase during this time and have an additional $800,000 in investments.

You would have a net worth of $1.1 million and would put you in the top 10% of wealthy households in America. See my post; Join the top 10% club for more on this.

WORDS OF WISDOM

A few words of wisdom to follow:

  • Buy less home than you can afford
  • Spend no more than 25% of your income on the housing payment
  • Invest the difference of the savings you received from not paying the full amount approved for
  • Stick to a housing budget
  • Have a god size emergency fund of 8 months or more

It sounds so simple, but most folks are actually living beyond their means and buying my house than they can afford. I have actually seen people in their 50s signing up for 30 year mortgages! Holy crap! The odds of paying off this home are slim at that age.

If you can follow the advice I give above, you could find yourself at the top of the economic pyramid.

Don’t believe me? Read my post Join the top 5% club and find out!

Financial Freedom, Real Estate

American homes are now $1,100 per month storage units

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American homes are becoming expensive storage units.

A house is not a home unless it contains food and fire for the mind as well as the body. – Benjamin Franklin

According to Zillow, the median home price in the United States is $200,000 across the country.

According to CNBC, in other cities across America, the price of a home is even higher.

That’s not too bad.

However, considering that the median income is $50,000 buying a home can be tough.

That would mean to purchase a home, based on the median price, you would have to spend up to four times the average median income!

Um. Hold up. I do not want to be house rich, cash poor. So, I suggest that people wait to buy until you can afford a decent down payment.

Lately, I have heard a lot of stories from friends, colleagues, and acquaintances about their desire to purchase a home.

I am all for it. I want what they want. It’s the American Dream after all, isn’t it?

Not according to some.

There are quite a few financial experts and self-made millionaires that feel a home is a liability and not an asset.

Unfortunately, in many ways a home is a liability. Unless it gives you money, its taking it from you.

Let’s examine this further shall we.

HOME OR STORAGE UNIT

Times have changed.

I remember when one parent would work and the other would stay home and take care of home. One working parent was able to put food on the table and provide for a family of four or five.

You could come home after working your nine-to-five and enjoy spending time with your family. You could eat dinner together and just enjoy relaxing in your home.

There were less cars on the road as many families in the 1950’s had only one car. There were not four licensed drivers and three cars.

Then in the 1980’s we went to two cars. And families were still able to put food on the table and take a yearly vacation.

If you want to have some additional confirmation and perspective on how times have changed, watch the scene in the film Back to the Future where Marty (played by Michael J. Fox) from 1985 says we have two televisions and listen for the responses from his family from 1955.

That’s right. One home, one car, one television. Simple, right. The good old days.

Well, those days are long gone for most folks.

It now takes most families having two incomes. And that is just to make ends meet. Many Americans are now living check to check.

It is not uncommon today to have two working parents.

Not only that, but to have one parent working multiple jobs.

For some people, it has gotten so bad that they are practically (or literally for some folks in Silicon Valley) living in their cars.

People go out, earn the money, and then spend upwards of 50% of take home pay on housing.

And that is after taxes (net not gross).

With housing prices in cities going for $500,000 or more, most of your paycheck is gone.

And yes, homes are going for half a million in various parts of the country. That is fact, not fiction.

According to Zillow, the median list price in Washington, DC is $568,600.

According to CNBC, in other cities across America, the price of a home is even higher.

Now working adults have to move further away from their jobs to find affordable housing. As to earn a decent salary usually means longer commutes, when you work in the city.

I live in the Washington, DC Metropolitan area. It is not unusual for someone to regularly have a one-hour commute.

The DC area has the second-longest average commute with an average travel time of 46 minutes or just under 25 minutes per one-way commute.

Let’s do a little math.

You start your day at 5 am. Get to work by 8 am. Put in the customary 8 hours. Travel back home and get there by 6 pm. Eat dinner, hug the kids, watch the evening news, and get ready for bed at 9 pm. Get the standard 8 hours and then do it all over again until Friday at 5 pm.

If you calculate through all that time, you will see you only spent about 5 + 8 = 13 hours at home and eight of them while you were asleep!

Oh, and don’t forget the weekend trips to the wine bars, parties, and regular outings or errands. Yep, again that is all time spent away from home.

You are not really utilizing and enjoying this home you are working so hard for. It has become a pit stop on the way to the work, the grocery store, the dry cleaners, soccer practice, and the trips to the Caribbean.

Basically, your home is storing your stuff.

You are either gone, going away from home or asleep most of the time your there.

Mighty expensive digs to be fronting as your own personal hotel, if you ask me.

Now let’s look at the cost of buying and furnishing a home.

BUYING THE AMERICAN DREAM

Not so long ago, families bought starter homes with hopes of trading up later when finances permitted to get their dream home.

Now, I hear more folks buying the dream home as the starter home.

So, instead of buying a condo or townhouse, people are getting 5-bedroom single family homes as the forever home.

Well, guess what? Dreams costs…. A lot.

Not only are homebuyers ponying up bigger down payments and closing costs for this mini Mansion, but also have to furnish it.

Trips to Ikea and Pottery Barn are being replaced with expensive interior designers and Havertys.

Not to mention, the costly window treatments ($500 per window), replacing new carpets with newer carpets, custom chef’s kitchen, fancy gas range, custom back splash, French doors, custom king bed, home office with Vizio or MacBook laptop, and the pool furniture.

And don’t forget buying a state of the art sound system for the man cave.

After going through every room, you spend enough dough to put one kid through college furnishing your new home.

Let’s add it up.

Home purchase price: $400,000 (approved for this amount)

Living Room Furniture: $10,000

Dining Room Furniture: $5,000

Bed Room Furniture: $8,000

Man Cave: $3,000

Kitchen remodel: $9,000

Office Furniture: $3,000

And you budgeted $240,000 for the home and $15,000 for the furnishings. With a total of $255,000.

However, what was spend was this: $438,000

That’s a difference of $183,000!

You could buy another house for that amount. You could then keep one and rent out the other. Merely a suggestion.

STORAGE UNITS FOR $1,100 PER MONTH

You read that right.

That comes out to $13,200 per year.

You’re essentially paying the bank thousands of dollars annually for you to literally have a place to store your hat box.

If you invest money in the stock market over 30 years and get a 7% return, you could have over $600,000 squirreled away!

Forget what lenders say you can afford. Do what you know you can afford.

Don’t be led astray from your budget. Stick to it. This will help you prosper and thrive instead of just survive.

Moral of the story: Don’t let your dreams be bigger than your wallet.