OUR LIFE IN 3D

The Home of Daddy's Day Dare! ~ I am just trying to stay above water

Archive for the tag “DRIP”

Tips For Tight Wad$: Time, Time, Time is on your side

If I could find a way to insert a WAV file in these darn WordPress posts I would right now as the Rolling Stones have the ideal background music for this next post. ~Darn you WordPress, no WAV files at WordPress!

My wife wants to buy a larger house, again. We need a bigger one for the kids and I am personally tired of this ‘fixer-upper’ but I will get back to this.

Just let me start with the idea “time Is on your side” when it comes to personal finance. Some people may debate this over  the last decade or so. I say maybe they weren’t so smart with their money and lived beyond their means (a future Tight Wad post). But time can certainly work positively or negatively in your personal finance.

Let me give you an example. Interest! In our house, interest is a 4 letter word. We don’t mention it. We don’t buy it. What do you get for buying interest? Less disposable income? Interest can work against you in your credit cards, home purchases, credit score and so forth. You have heard the sad stories so I won’t take up your time here with that. Simply, don’t buy interest. Lots of companies want to sell you things interest free.

For example, look for the terms, 6 or 12 months ‘interest free’ or ‘same as cash’ when buying a large ticket item. Figure out what you can afford in your monthly budget, extend that across the months in the terms and then stick to it. Bam! You just bought a new roof or siding or that coveted patio set without paying a single dime in interest. Don’t pay interest! Over time it can eat you up! And you have better things to do with your money, right?

Let me give you another example. I am not getting political here I just want use this for an example. I heard last year President Obama made roughly $800,000 a year.  Senator Romney made over $20 million last year. Obama paid taxes around 20% (yet another Tight Wad post) while Romney paid only in the 15% tax level. How? Most of Senator Romney’s money comes from stock and bond income or dividends…accumulated over time. Dividends are taxed at a lower rate than personal income.

Here’s where I plug Dividend Reinvestment accounts again, or DRIPs.  DRIPs clearly are a way to let time work for you in building wealth. This investing is not sexy or glamorous at first.  Its not a get rich quick scheme. But put on auto pilot it can build Romney-like wealth over time. Well, not quite that much. MY dividends received for the first 10 years or so were nothing to brag about but now, they are starting to look a little sexier now, by reinvesting the dividends paid.

Coke for instance, is netting a positive 68% growth over the last 10 years for me, with dividends reinvested. 68%! By the time my girls are in school I will look REAL sexy thanks to Coke and a few other DRIPs. LOL not literally mind you but enough to swagger into Perkins for the early bird special. I can here the popular girls saying, “Ohh, yuck, totally gross!”

Which brings me back to my wife wanting to buy a house. We have been in this house for about 10 years and, financially, we’re ready to move. How? Write this down…Bi-monthly mortgage payments. if you never heard of these before they make time work for you!

Several years ago the end of the month looked very bleak for us. The last 10 days of the month I had to cover the mortgage, my car loan, the cable bill, cell phone bill and an unfriendly adoption loan payment. Ouch! I stumbled upon bi-monthly mortgage payments.

If you have never heard of these, simply, bi-monthly mortgage payments are just splitting you mortgage bill in half and paying half on the 15th of the month and half on the 29th of the month. You are not paying any more money per month than normal; just splitting it up. That’s it. Put it on automatic drafts from the bank and it is mindless. Even faster payments to principle are bi-weekly mortgage payments, making half a mortgage payment every other week.

What does this do? You are paying more ‘principle’ off early this way. This amounts to an extra mortgage payment being made each year. Less principle means paying less interest. That’s not enough for you? Look what mortgage calculator web site has to say:

“With the bi-weekly mortgage plan each year, one additional mortgage payment is made. That extra payment goes toward the principal of the loan. Since the homeowner is reducing the amount of the loan balance quicker, they are also reducing the amount of interest charged over the life of the loan.

Here’s an example:

A 30 year mortgage for $100,000 at a rate of 6.5% means the homeowner will pay $127,544 in interest throughout the life of the loan. This also includes a $100,000 principal for a grand total of $227,544. Paying one-half of the regular monthly mortgage bi-weekly makes the interest $97,215, which is a savings of $30,329. The homeowner would have to earn over $42,000 before taxes in order to net that much money.

Benefits of Bi-Weekly Mortgage Payments

Here are some things that a bi-weekly mortgage schedule can do:

  • The mortgage will be paid off faster. A 30-year mortgage can be paid off in about 22 years. (!)
  • Equity will build in the home more quickly.
  • The homeowner can arrange to have payments taken directly from the homeowner’s bank account automatically.
  • The homeowner will save thousands of dollars over the term of the mortgage. For example: By paying biweekly on a 3o-year fixed rate mortgage of $100,000 at 6.5% interest, the homeowner could save over $30,000.

Did you catch that? You can pay off your mortgage as much as 8 years early! What could you do with the extra money of a mortgage payment laying around each month? Not to mention the “saving money on the I-word” part” .

And that is where we are at right now with our mortgage. We have paid off plenty of principle in 10 years to allow us to take some profits and move to a bigger pad for the kids. It is quick and easy. Just make a phone call to your mortgage lender and its done in 5 minutes. Five minutes saves you thousands and thousands of dollars; or rubles, pesos, or francs. JDI!

So my point here is (time, time, time, is on your side. yes it is!) Time is a friend of yours.  ~ My wife says ‘cheese’ is a friend of hers. My friend has been Jose C! But time wants to be your friend too. If you have a mortgage right now and you are paying a single payment a month take a look at this and what it can do. If you are going to be buying a home in the future please keep this in mind, “bi-monthly mortgage payments” . You will own that home A LOT faster or be able to trade up earlier too. There’s no catches here. Its just being smart with your money. There’s nothing wrong with being a Tight Wad!

For more information on bi-monthly mortgage savings Google the term(s) or click right here. And please don’t forget to invite us over to your mansion so we can awe. ~ I’m really good at that’ the ‘aweing’! And I can bring some snacks…

Live Well! Be Thrifty!

Tight-Wad Tuesdays: Aim for a Soft Landing

My wife is addicted to the extravagant Housewives franchise on reality TV. Last night there was a season ender with a wedding in Beverly Hills (Housewives of Beverly Hills). Love ‘em or hate ‘em, it was clear this housewife loved her daughter and put out an incredible event for her daughter’s wedding.

Beverly Hills wedding

It left me with the thought, wouldn’t we all like to do that for our kids that we love on their special day. I turned to my wife, breaking the encouraged silence, “I better start saving now for our girls”. Their big day may be only 20 years away. How else can I afford the rose petaled chandeliers, 100 of our closest friends, parking for said friends, the $9000 wedding cake and so on? My wife gave me a confirming nod.

Now that I have the job again, its fun to do all the fun financial planning. The first thing we talked about was where we are going on our next vacation, followed by a new deck for our backyard, funding the kids educational 529’s and our retirement DRIPs. It feels good to get back in the drivers seat!

If you are young and reading this you may think all that is a lot to pay for with a weekly paycheck. If you are older you know how it all somehow falls into place. Planning the short term stuff is fun and easy. It’s the long term commitments that are more challenging and may get brushed aside.

As a financial adviser I can tell you most people think their 401k’s will fuel their retirement. That’s the easy way for planning and wrong on so many levels. First there is the thing called Enron. Those employees lost their entire 401k savings from the wrecking of a company.

Bye-bye Enron!

Second, how long are you going to live in retirement? People are living longer every year. Plus, in today’s standard of living, people actually think they are going to retire early, adding more need for a hefty safety net..

Third, what are things going to cost when you are ready to retire? What did cars, or a loaf of bread, cost 20 years ago? What will it cost in 20 more years?

These are just a few signs that tell you 401k’s are not the sole answer to living a lifestyle you worked so hard to build over your first 60+ years. I don’t know about you, but I want my savings to last a long time, going down slow like a parachute instead of plummeting like the speeding impulse of the bungee jumper.

So wouldn’t you want to retire a millionaire? A million dollars won’t even be that much in 20 more years. We better get started!

I told you an easy, painless, carefree, so-simple-you-won’t-even-know-it way to build for a comfortable nest egg when you are through with work. I showed you the things to look for when investing in great companies, such as generous dividends and a good dividend yield. I also showed you some of the cream-of-the-crop, as far as dividend paying, reinvesting companies. So now I want to show you exactly how to do this.

First, your homework. I showed you a sorry graph on dividend paying companies last week; companies we all know and love. Otherwise great investments, right? But the last two were not so. Why?

We are planning for the future, right? We want to be sure whatever companies we invest in will not only be around but going strong in the future; a good 20 – 30 years from now… at least.
Phillip Morris (PM) is doing better than ever right now. Its stock price has hit record highs this year. Its dividend paid is far superior to most companies. What’s the problem?

You know how Phillip Morris makes the bulk of its money, right? Cigarettes. Each year the government is making it harder and harder to stay in business via levying taxes. Its industry is under constant attack from legal issues and people wanting millions of dollars in law suits because cigarette companies lie in their advertisements. And lifestyle changes! I am not so sure this company will be around in 20 years, or at least doing the level of sales as it enjoys today. I don’t think buying this company would be so smart for over the long haul. McDonalds and hamburgers yes. Cigarettes, no.

Eastman Kodak. Did everyone’s family have a Kodak camera at one point? Pictures printed on Kodak paper? Everybody had these! The graph I left tells the story of Eastman Kodak. They have fallen all the way down to a Penny Stock. Quite coincidently, Kodak filed for bankruptcy the day after I posted my blog last week. Why?

Their business was making and printing pictures…the old fashioned way. Kodak cameras and Kodak paper. Today everything is digital. The cameras are and the pictures sit in our computers; not so much on glossy paper. Kodak stuck to its guns and did not adapt, or tried way to late. They were a great investment years ago, paying a hefty dividend them self. But now they are filing for bankruptcy.

The lesson to learn is, when picking a company for the long-term, pick a staple that everyone will want and need in the future. Staples like healthcare, food, household items, hospitals and so on. Don’t pick todays hot company or latest trend. The world is changing at a rapid pace. And nobody wants cameras with rolls of film that need to be shipped away before you can see them anymore.

HOW TO START YOUR OWN DRIP:

1) Pick some companies you know and love. This way, if the way the company’s business changes, or would no longer be in style, you will know when it happens. These companies are not hard to find. You buy them every day stores.

2) Research the company’s dividend. How much is it? Is it fair in relationship to the price of the stock ? (dividend yield) Don’t sweat this! You can find this number on any computer’s homepage under ‘Finance’, then ‘Price Quote‘ and then ‘Fundamentals’. Try this now with Coke (KO).  Dividend yield is on the first page under ‘Quote’. The actual dividend paid is on the next page, or ‘Fundamentals’ and it took you less than 60 seconds to find this out. And 2 minutes to write down the information you want.

3) Research your preferred companies Dividend Reinvestment Plan. You may find this under the company’s web site; under ‘Investors’. You may also find the info at a Transfer Agent’s web site, like Computerhare. Take an evening after work to compare the specifics and what you are looking for in a plan. This is the bulk of the investment of your time in DRIPs,  so take your time. The things you want are under last weeks blog (little to no fees, automatic bank drafts, possibility of making larger cash payments).

4) Buy your first shares! To buy your first shares you may have to go to a bank this one time and ask to speak to a professional adviser. They need to purchase your first shares for you. Sometime stocks want as much / little as a $500 investment; or only one share. Just ask first. Some transfer agents let you buy your first shares directly from them. (Lots easier! ~ bookmark this page) Your research in the various plans will tell you this.

5) Get the shares in YOUR name. If there is any tricky part, it is here. When you go to your professional you must ask / insist the shares be put under your name. All trading houses buy shares for you but they hold the title to them until you are ready to buy or sell again. Ask for the stock to be put in your name! The adviser will comply. Go with your spouse or a friend to the bank just to hold the adviser to it.

6) Set up your DRIP with the Transfer Agent. If you buy the shares under your name the company will send you these shares ( I think they look so cool). They will also send you literature about their Dividend Reinvestment Plan and how to set it up with their preferred agent.  Contact the agent to set up your Golden Parachute account! They will need a bank deposit ticket for the automatic bank drafts funding your retirement package.

That’s how it is done! There is nothing tricky are too hard that your education has not brought you to. There is no need to be an expert, a doctor, adviser, lawyer, or anything. These plans are set up for the common person. (Look at me! ~ I’m so common)

If you want some additional info on setting up a DRIP accurately here is a link and here. Take some minutes or read this info and be comfortable with the process. The entire process may take up to 2 months to complete. Nothing will sneak by you. Now, have a party! You just bought your first company! At your age! (Your family will be so proud)

Finally, daydream about where you want to spend your life when you are tired of working, the car you will drive, the vacations you take, the foods you eat. You just funded that comfortable landing in your retirement. Great job! Your soft landing has just been put on auto-pilot from here.

Home Sweet Home!

~ If you have any questions about anything I have gone over the last 3 Tuesdays, don’t be a Tight-Wad,please ask me and I will do my best to help:  Mccleafhome(at)comcast(dot)net

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