Month: July 2019

I was listening to the Dave Ramsey show during work one afternoon as I always did, and he offered a caller a peculiar piece of advice that stuck with me. The caller had all sorts of debt and had nothing to show for himself, and Dave asked the caller “If you were hired to handle money for a business called You, Inc. could you do it?” The caller responded that he could. Dave then asked the caller if he had been running a business’s finances in the manner that he ran his personal life, would he get fired? Most probably, yes.

Here are the facts. Most people do not do smart things with money because they make emotional decisions with their money. When it is someone else’s money, they do not make emotional decisions because it’s not their money. It’s much easier to be smart with someone else’s money than our own. To be successful with money, you have to break the tie between your emotions and your purchasing habits. The only way to do this is to run your financial life as if you were running a business called Me, Inc.

If you were to run a business, would you do it with just a checkbook and make a financial decision if it sounded like a pretty good idea? Of course not, you would want to maximize your return on investment and keep a close eye on your expenses. You have to be able to track where your money is going, not just for one month, do it for every month. Use a QuickBooks, Microsoft Money, or a fancy Excel Spreadsheet.

You would never run a business without a financial plan and an annual budget for the business, and you should never run your personal life without those things either. You need to have a list of financial goals that you want to achieve. You can’t just say that “I want to save for retirement.” You have to specify how much you want to save for retirement, where that money is coming from, where it’s going to be invested, and when it’s going to be invested. Use specific goals. Doing a budget every single month is also a must. If you’ve never done a budget before, there are plenty of great free budget forms online.

Most people fail to do research and planning with money, and in the end, it just slips away from them. You have to be intentional about your finances. Research as to what you should be doing with your money, have a specific financial plan, do a budget, and don’t let your emotions get the best of you when it comes to making purchases!

To be successful financially, having a budget, and sticking to it is a must! A budget will tell you where all your money is going, and allow you to show your money where you want it to go rather than just allowing it to slip away from you! It will help you make priorities and reach your financial goals. This works great if you know what your income will be every month, however not all of us quite know what our income will be every month because part or all of our income is based on commission and other factors which cause our salary to change from month to month, so it can be quite difficult to budget an unknown amount of money, but it can be done, and here’s how you do it!

The first thing that you need to do when budgeting on an irregular income, is to list all of the things that you would like to do with the money in a month. This will include everything, paying for groceries, buying gasoline, paying the mortgage, your insurance bill, putting money away for retirement, and you name it. This can even include outlandish things that you know you’ll never get to, such as buying a new car.

The second thing you need to do is prioritize. Write a one besides the most important thing, which is buying groceries. Write a two next to the second most important thing, which is paying utilities. Write a three next to the third most important thing, which is paying rent. Four is groceries, and five is some necessary clothing. After those items, keep numbering down from most important to least important. Now when you get money, you can start by spending money for the items on the top and go from the most important to least necessary. That way, all of the important stuff will happen first, and the less essential items are secondary.

If you have a very irregular income, such as if you work in real estate solely based on commissions, you can do something else, you could make nothing one month, $20,000 the next month, and then nothing for the next two months! It’s not an option to quit eating and driving for a month, so we have to do something different here. Figure out what your average income a month is, and when you make any more than that a month, put it in a separate checking account, and keep it for when you don’t make as much money in another month. When you have a month which is under your average, take the difference from the average in your other checking account. This is your “hills and valleys” fund, which helps flatten out your income so that you can more predictably spend money every month.

Budgeting on an irregular income can be more complicated than on a fixed income, but it can be done, and it is worth it!

The stock and bond markets always change in value. If you are invested in the markets, you are going to experience the financial effects of fluctuation. Should you worry or not? Here are four reasons why you should not worry, and two reasons why you should.

You should not worry about downward moves in the market for these reasons:

1. If you primarily invest for dividends, the dividend income is your focus, not the value of the shares. Dividend investing has some similarity to the real estate owner who rents his or her property. The monthly rent helps determine the return on investment. The market value of the property is not of great concern since the owner does not intend to sell. The current purpose of ownership is the receipt of income. If you are content with the dividend income from your mutual fund or stocks, the market value is a secondary concern.

2. If you are purchasing shares regularly, a downward move in the market is not a problem–it is an opportunity to accumulate more shares at a lower price. The downturn can be a welcome event. The renowned investor, Warren Buffet, seems to find good values during periods of market declines. A lowering of prices does not necessarily mean a scarcity of good value. Sometimes prices are lower because the demand for ownership has fallen–and not because a business or a property suddenly has less value. If you believe that a decline will not be permanent and that demand for ownership will increase in the future, the current market price is not that important.

3. If you are a long-term investor, current prices should not cause worry. A long term maybe five years or more. The question is, what will prices be in five years? The answer should be based on the investment’s prospects. As an example, the cost of real estate may be calculated by using rental income return as a determining factor for investment value. This return on investment reasoning can apply to dividend-paying stocks as well. If rents will go up in the future, or if business profits will increase in the future, so will the price that someone has to pay to assume ownership of the asset. As a bonus, you have had the benefit of the dividends, or return on your investment, throughout the entire term of your ownership.

4. If you understand that there is a relationship between risk and reward, you should not be upset as the investment process unfolds. Informed risk-taking uses information and reason in an effort to offset risk. Risk is never eliminated. For you to claim the fruits of excellent investment results, you must also be willing to bear the negative possibilities that accompany risk-taking.

Here are two reasons why you should worry about downward market moves:

1. You are an equity investor. You do not invest for income. The market price of your assets must move higher from the price you paid for you to make a profit. When you are not looking for income to provide a return on investment, you have no other choice than to rely on the increase in market price. Why does market price go higher? Because there is a demand to own the asset or because there is a belief that the asset’s value will increase. An income investor has a real indication of an asset’s productive value, the anticipated dividend, while an equity investor relies on less concrete indicators. Therefore, a downward price movement is of more significant consequence.

2. You plan to sell your investment soon. You want the highest price you can get. Will the rate go higher or lower from where it now sits? The need for cash and a pessimistic view of near-term market direction are both strongly tied to the current price.

Whether your interest is in participating in dividend-paying stocks or in buying low and selling higher, your temperament and tolerance for various levels of risk are factors to consider when choosing your investment strategies.

Howard Feigenbaum is Registered Principal and Owner of Sharemaster, a Broker-Dealer firm that specializes in monthly dividend income funds.

“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” – John D. Rockefeller

This article is a general discussion of the subject and is not intended as a solicitation or specific investment advice.