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Wealth Myth – Stay Married to Become Wealthy

February 2nd, 2012

Like everything in life, the “Stay Married to Become Wealthy” saying really depends on the situation!

I have two different friends that have financial inept spouses from Hell.  One got a divorce and is doing fine, while the other is living in a continually tortured life with constant battles with debt.

Friend #1 (this is really the guy in the story Financial Pig 1, in my story of the three little financial pigs)

Of the three little financial pigs that I’ve mentioned before, he is the most dynamic.  After his divorce, and the purging of his debt, he was able to turn his life around and actually get another great job with potential.  Had he stayed married, he still might be living with his wife in relative’s basements while she spends all of the money he makes.

For him, getting a divorce meant that he has a shot at accumulating wealth like he hasn’t before.  I talked to him recently, and now he’s driving an economical Chevy Malibu (which I have too and hate), and is socking way his money.  And although his new wife (she was his girlfriend in the last update), is much better than his previous wife, she does spend more freely than I feel comfortable doing.  But on the other hand, they aren’t going out as much either though, so perhaps I’m not getting a good read on his situation in this area.

I’m positive if he was still married to wife 1, they would still be in massive debt and trying to declare bankruptcy a third time!  Hooray for him, his divorce probably saved him from permanent financial ruin.

Bad Marriage

Friend #2 (I haven’t talked about her before, but she could use a divorce too, and I’ll explain why now)

My other friend at work (who was laid off a year ago), has a husband that floats in and out of work, but spend all their money on toys to entertain himself.

He buys mostly muscle cars, and car parts, always goes out drinking and like to go on trips with friends while my friend just keeps working away like it’s nothing.

They were married in high school, so they have a long history together.  But unfortunately, they aren’t really that compatible.  Perhaps he realizes this and that’s why he cheats on her.  Yep, and the kicker is multiple people have called her and told her so.  So here you have a guy that spend all the money in the family for toys for himself (and the kids), who goes on trips without her and is even cheating on her, but still she stays married.

And the real punch in the gut is that he’s perfectly healthy, but hasn’t worked a real job in the last five years!

In this friend’s case, it would make total sense for her to divorce her husband, but she chooses not to.  I can guarantee that they will never be wealthy unless they win the lottery.  But even if they win the lottery, the money would be gone in five years.

So have I debunked this wealth myth!  It really does depend on the couple.  For my wife and I it makes sense because we are both frugal and agree on many issues, but for my friends above, divorce is the best answer (and not just for financial reasons).

Do you have any stories about couples that are married but would be better financially if they got a divorce?

MR

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Do Blogs or Dividends Pay Better Returns?

December 15th, 2011

As I am planning my escape from my day job, I am working hard to build up passive income streams. Two of my planned income streams will be money from blogging and dividend investments. Money Reasons often covers the idea of using dividends to pay for everyday expenses, so I couldn’t think of a better topic than to examine whether it would be better for someone to invest in creating blogs than to invest in a high paying dividend stock. Overall, I like his idea of using dividends to pay for certain things in life, but I thought I would give it a closer look to see how it compares to blogging.

What kind of return can you expect with a blog?

In order to compare the two investments of managing a blog and dividend investments, we first have to level the playing field. Blogging, as anyone who has done it knows, takes time. Lots of it, in fact. So, in order to make it comparable, we are going to assume that I am creating a personal finance blog and hiring out all the services it takes to effectively run that blog. I will allow 2 hours a week to manage it because I would assume that someone spends that much time looking at or researching dividend investments. That may be a high estimation, but I don’t think it’s that much of a stretch. Estimating the costs this way will help me compare the two investments.

In order to make a blog financially successful, most people say that it takes 6 to 12 months to build up a blog to where it is earning a decent income. For the sake of being conservative in my figure, I will go along with the idea that a blog needs to be in existence for 12 months before it is making a decent profit. Considering that my latest passive income report shows that I am already making $700 each month (primarily from one blog) after 3 months, I don’t think it is out of the question to assume that one could make $1,000 each month from a blog that has been around for 1 year. Before we calculate the return, we first need to figure out our total financial investment to build it up to that $1,000 mark.

Expenses

Here’s a look at what the expenses might look to build up a blog that would be earning $1,000 each month:

Start up Costs:

Domain Registration and Privacy: $20
Web Hosting: $80
Logo: $75

Total Start-Up Costs: $175

Content/Writing:

$20 per article
x  156 articles for the year (posting 5 articles on the site every two weeks with an additional guest post elsewhere every other week)

Total Content/Writing Costs: $3120

Networking:

Carnival Submissions – $20 per month ($240 total)
Commenting – $20 per month ($240) [this is just an estimate]
Social Networking (facebook/twitter/fwisp/etc.) – $20 per month ($240) [this is just an estimate]

Total Networking Costs: $720

Total 1 Year Costs: $4015

While some of these figures are estimates, I believe I could build up a reputable site without investing too much time for $4015. Again, while I try to avoid paying any costs to hire anyone to do these things, I had to put it on an equal playing field. So, what does all of this mean?

If we were looking at a two-year window and assuming that at months 12-24, the site made $1000 on average each month, what kind of return would we be looking at? Well, with two years of maintaining the site, the total expenses would be at around $8,000. Yet, your total income would be $12,000 (and that’s not even counting the few months in the 6-12 month period that would be in the hundreds). If you were to invest this all upfront, you would be looking at an estimated return rate of 50% over the two years, or an estimated annual return rate of approximately 22%.

To make a long argument short, if you can find a dividend stock beats a 22% annual return, sign me up. I will admit that I am new to investing in dividend stocks, but it doesn’t take a genius to see that you won’t make that kind of return in any traditional dividend-paying investment. The only down side is that I am not sure how long making money online will last. I suspect it will last another 5-10 years, but who can say that it will last 20 or 30? It may be a short-term investment, but it seems like a darn good one, if you ask me.

What do you think? Would you rather manage a blog or purchase dividend stocks?

This was a guest post from Corey at Passive Income to Retire, where he is tracking his progress to retire by the age of 27.

MR here, I like this comparison, but I really view each form of income generation as part of the same team.  Dividends from Stocks, being the more purer form of passive income.  Blogging for me takes a lot of time and energy, so I don’t really believe it’s passive income for me, at least not yet.  Dividends on the other hand are a buy it once, check it quarterly and that’s it… kind of passive income stream.

Thanks Corey for the interesting angle on passive income.

MR

 

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Alternative Plans For Financial Independence

November 18th, 2011

Is My Financial Independence Plan Flawed?

With respect to Financial Independence, I now realize that previously, I’ve put my entire financial independence strategy in just one well known plan.

My “Financial Independence Plan A” is pretty much your standard run-of-the-mill savings by frugal means and invest that savings like a fiend.  To be honest, so far Plan A is working for me, I’m doing about as well as can be expected in this economic environment.  While I’m not a millionaire yet, I’m on my way to achieving a net worth of a million in the next eight years following this path (fingers crossed).

But, what if something happens? What if Unemployment keeps rising and I get laid off? 

Getting laid off would severely affect my current employer paying income stream, and would be a serious blow to my investment strategy since eating and feeding my family would get in the way of investing (my family members are so inconsiderate that way, lol).

What if I get Madoffed?  Then I find myself much older and less inclined to want (or even able) to work as diligently?  Is having only one plan analogous to having all your eggs in one basket?

Alternative Plans for Financial Independence

I’m now pursuing at least two other paths for Financial Independence!

Financial Independence Plan B – “Side Job Income“:  Find a job (or create one via entrepreneurship) that in five years should pay at least a quarter of your current “primary job” salary earnings (or self-employed income).  Then take the entire income stream (minus taxes) and invest it in dividend stocks or decent bonds (perhaps municipal bonds – do this when and if the bond market comes back) with a decent yield that are still safe.

The advantages of Financial Independence Plan B are as follows:

  • In combination with Plan A, you should be able to save twice as much as you do if you are just using a Plan A.  This is a great accelerator to achieving Financial Independence!
  • The dividend stream should be invested back into your dividend investments, but alternatively (if you are willing to sacrifice slower growth), you can use a portion of that dividend stream for rewards such as vacations and other family/personal fun activities.  The family/personal fun activities provided by a dividend stream is the route that I am following as seen in the following articles:
  • If something happens to my primary job, I have this one to serve as a backup.  This second income source, dividend streams and the fact that I’m totally totally debt free means that I can get by without any real hardships.  However, my lifestyle (and especially my kids) would definitely have a dip in enjoyment since I would have to forgo vacations and they kids would have to stop playing sports and other fun and educational activities!

The primary disadvantage of Plan B is time.  You will have less time to spend watching TV, being with family, and leisure in general.

Financial Independence Plan C – “Being Smart about spending and saving money” – This is about getting the best deal on a product without doing something foolish like driving wasting gas money, while trying to save a dollar.  And about detecting and taking advantages of income making opportunities instead of giving away time, your work, and stuff away for free.  I will have a more detailed post about this in the future.

Both of my Plans B and C are evolving, so in the future, I’ll expand on each!

Do you have 2 or 3 alternative plans on becoming financially independent?  The beauty of such plans is that as long as they aren’t too expensive, anything goes since they aren’t necessary for you or your family’s livelihood.

Have a great weekend!

MR

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Why A World Without Rich People Would Suck

October 28th, 2011

All to often, the media (whom all are rich themselves, don’t be fooled) points out that the rich people are the problem with society.  They ridicule and make fun of the rich, and blame everything under the sun on the rich.  It’s kind of ironic considering those same folks complaining about the rich are much richer than the top 1%.

Let’s play a game called rich elimination.

In this game, we take the money away from those that are rich and ban them from making money.  They now have to live on the median income amount that the average individual (or household) makes.  Let’s identify those rich folks as people who have more than 20 million.

This destruction of this level of rich folks makes angel investors practically disappear!  Luxury purchase that eventually trickles down to the masses are gone.  Thinks like automobiles will not be invented, same goes with new medicines.  And obviously, tax revenue that the government uses for most of their spending get hit hard!  So naturally the tax increases across the board by 50% or more.

Next now we have a new problem, those that have 2 million to 20 million are now the rich and need to be treated the same as the first wave of rich destruction.  Those that have (now had) 2 million to 20 million will have their money seized by the government.  , This fixes the tax problem, and now these individual are paid the median income amount.

I’m going to stop here because we all know that to continue the destruction of wealth (those that still have 1 million) leads to a communist state and that doesn’t work (look at China and Russia and how they did change to allow capitalism in their society).  North Korea is a great example of a system that doesn’t work, especially when compared to South Korea.

Back to the point that the higher rich levels have been redistributed, what does that mean for society?

  • We all need to pay, oh maybe 60 to 80% in taxes (and in the worst cases all) to support the government (we all know that when the government spends money it’s hard to make them stop spending money).
  • Inventions that are expensive to initially make like Refrigerators, Cars, TVs, Computer, etc…  are no longer created because nobody can afford to buy them because the first models are so expensive that only the rich can buy them  initially.  But at least we get to play plenty of frisbee now!
  • Medical advances stop!
  • Mortality rates climb, because new drugs are being made since the government show down those over priced drug companies.
  • Disaster money disappears
  • Crime increases
  • Businesses stop
  • Society devolution starts.

The thing about being rich is it’s relative.  Unless you are a Gates or Buffett, there is always someone richer than you that makes you feel not poor.  This may be why people like John Stewart and other media performer act that way.  Or perhaps it’s because they get paid to do so.  Perhaps they (the media giants) are all playing us for the fools, because they earn money for doing so.

Thinks of a third world country when you want to see a country without any rich folks.  Shoot, our founding fathers in the US were rich!  If Benjamin Franklin hadn’t gone over to France to woo the French, we would have had the support of the French Army to help us fight the British.

Without rich people, the world would be a much darker place.

Have you ever wondered what it would be like without any rich people in the country?

MR

 

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The Cost Of Being A Top 1 Percent Earner?

October 26th, 2011

Lately, it seems like the media and world in general, are against the top 1 percent of income earners.

It’s presumed that the fortunate top 1 percent have it easy and they just go to work socialize.  Perhaps they go to the golf course and play 18 holes while the rest of the workers (those lowly 99% of income earners are such tools) slaves away making the money for the top 1%.

Actually perhaps there are a few like that, but they don’t last long and their numbers are very low.  Eventually someone a bit leaner and hungry knocks such slacker off of their perch.  So the image of a top 1 percent income earners does not reflect reality.

What makes me so sure?  I’ve seen the suffering of a friend that made it to the top 1%, here is his story…

Jon was a VP of finance when I knew him.  He was a very friendly guy to great, but behind closed doors, he was much, much more.  If you met Jon, you would think what a nice guy, a family man and overall a class act.  Jon really was a great guy but he was also a businessman with business drive.  He had so much drive that he would stay incredible late working with the then CEO of the company I worked at.  Once I was part of their discussions, and this wasn’t the Jon that the other employees knew.

I consider myself a keen observer, so in my mind I put a few things together and painted a crude picture in my mind what his personal life must be like, and it wasn’t pretty.  Mostly he held it together quite well, and stuck with his huckleberry routine, until one day when we had the classic moral building exercises that always happens at larger corporate businesses (or so it seems).

During this “feel-good” meeting, Jon got up to speak.  He was delivering an excellent speech on going a little bit further than the other guys.  After all, it doesn’t matter if you win the race by a nose or a mile, what counts is that you put the time in and win…

That’s when it happened, Jon started going on and on about the time commitments, when he deviated off course and started talking about not seeing his kids.  A red flag in my mind went off, thinking “Hey, this isn’t part of the speech, it doesn’t fit”.  At that point, Jon continued with his speech, but literally he started crying.  Being a pro, he continued with the speech after jumping back on track.  He used his charisma and polished looks to deliver a speech that appeared to most in the audience that the man just had incredible passion.  But, there are a few of us that knew what really happened.  It was an eye opening glimpse into his 1% life, and honestly since I have kids, I choose my kids.  Even if I had the potential to get into the 1, 5 or even 10% income classes, I wouldn’t want to sacrifice the time that I could have spent with my kids doing things (although blogging is really taking a big slice of that time!).

My friend has since moved on to head up another company as a CEO.  When I knew him, he had just crossed that threshold to the 1% club, but not he is firmly ingrained in the 1 percent group.  I don’t see him much anymore, but I’m sure if I did, he would still great me with his warm, but polished and rehearsed greeting.  I’m sure he still works long hours and cries (literally) about his kids growing up, being raised almost sole by his wife.

So before you think that the top 1 percent group has it so great, think of my friend.  If you do, you’ll see why I’m more than happy to live a more (money and time) balanced life, at least now.  I’ll probably regret it when my friend is vacationing in Europe (lol).  I’m pretty sure he has crossed the threshold to financial freedom already.  Still, unless you’re buffett, you can never have enough money…

I hope you found as much value as I did watching Jon’s story unfold when my old friend gave his speech.

Thanks,

MR

 

Update!  I just read that the top 1% earn 17% of the total income in the US, but pay 37% of all the tax revenue brought in!  Check out this Money.cnn.com article called:  Who are the 1%

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