Monday, March 19, 2007

Correction Spending

I am Irish so these past two weeks have been great as they are every year. South Side Parade and of course St. Patrick's Day! I am already looking forward to next year.

It got me thinking about when my wife and I first got out from under debt, which was about this time a few years ago. We had worked so hard to get out and get our monthly investment amount to the current $4,500 and rid ourselves of all non mortgage debt. Then when we cleared it all up we had what I call a correction. Just as the stock market has healthy corrections, we had a correction in which we went and purchased many things we may have felt we went without with for a while. At the time I didn't call it that, but afterwards I realised it was healthy and so called it a correction.

I read once that starving yourself to loose weight, quitting and ending up gaining more weight than you started with is also true of starving yourself financially so as to not spend too great an amount if and when you may quit. Although my wife and I don't make large spending a part of our regular monthly plan, we do allow for it once in a while as a healthy correction. This keeps us from getting used to a higher standard of living all the time. We gradually increase our standard of living as we earn the right too, by increasing out assets first. This way we are never dependant on our earned income. As we get older we will be in the upper echelon of incomes and not have to spend a single hour at an office if we don't want to.

What do you think about "correction spending"? Do you have another way that works for you?


Wednesday, February 28, 2007

The Dividend

It is days like we had yesterday that will validate your commitment to dividend paying stocks. If Wal-Mart goes from $48.00 to $44.00 (not that it did) the dividend is still $.67 a year and that goes up every year. That is income you will receive year after year without having to get up and go to work in the morning. When there is a "sale" like the one we had yesterday you can get the income stream cheaper.

I don't enjoy seeing the value of my portfolio get hit hard, however when these times occur the most exciting thing I can do is deploy more Washington's to work for me and my family.

I will be posting more, I have just been focused on finishing my MBA. So check back from time to time.

Have a productive day,

Jake Blake

Thursday, February 22, 2007

Financial Freedom

I am 4 years away from retirement (although I am not going to retire yet). What I mean is that in about 4 years my portfolio will generate enough income from dividends and interest to cover all of mine and my wife's monthly operating expenses. That has been one of our big focus points for the past 5 years.

Wealthy to me, is when your assets can sustain your lifestyle no matter what and rich is when your assets toss off more income than you require. Once we hit that goal we will continue to build the portfolio, however we will decide then if where we are working really makes us happy. If not, then we can go and do other things for earned income. Imagine not having to work, but if you do work you do something that makes you happy.

We have been keeping a close eye on what I call our monthly operating expense (MOE) and an even closer eye on how much closer we get to covering it every month. Although we have money invested in non-income producing assets (NIPA) the majority of our assets are invested in income producing assets (IPA). The NIPA's will eventually be converted to IPA's, however they currently tend to gain more annually then IPA's where they are at. So once they are large enough they will be converted to high paying bond investments.

This strategy allows me to not be concerned with the market's volatility, because a diversified portfolio of IPA's will continue to pay out the dividend no matter what the stock does (if they cut the dividend, then I cut them from my portfolio - although I should have seen the cut coming if I have been doing my homework). In fact the lower the stock price the cheaper I get to buy the perpetual stream of income. I never think about selling unless the company starts to show forms of weakness. 4 more years and my Monthly Portfolio Income (MPI) will equal my (MOE). From that point forward as my MPI grows, I can grow my MOE or just indulge in bigger and bigger toys from time to time.

Just a follow up...

(MPI < MOE) = Dependant on earned source of income.
(MPI = MOE) = Independently wealthy.
(MPI > MOE) = Rich.

Have a productive day,

Jake Blake

Friday, February 16, 2007

Pursuit of Financial Freedom

I still remember what it was like to pay off the last of our debt. Talk about a sweet feeling. It was the first real step to becoming financially free.

My wife and I had started building our wealth about a year after we met (going on 5 years now). We were going to open a coffee shop back then. We had built a b-plan, lined up financing, the whole works. Just before we signed the lease we decided to hold off. I'm not sure that was the best decision, however I am sure that we are in a great financial position now, so brewing coffee could have been better or worse but it matters not at this point. What we decided to do was buy our first rental property and we ended up buying two and our primary home all within a year and a half. It was a fast time and we were planning to buy one rental every six months for 5 years. That would have provided us with about $350,000 a year in cash flow. We stopped because the state in which we live raised property taxes to a level that created a negative cash flow each month. So the more we bought, the broker we would have become. We then used 0% financing to fix up what we had and sold out. We still have one rental and our home.

At that point I asked myself why I was focusing on real estate when I know how to make money in the stock market. I then decided to maximize our monthly cash flow into the market (individual positions for the most part). We spent some time paying off all our non-mortgage debt and when that was finished we had put ourselves in a position to invest about $4,500 a month. We thought about paying off our mortgage in the next 2-3 years instead, however after working with the numbers, we will have built much less wealth, also our home will not provide a monthly income when we resign from our main vocations (please see previous post on House vs. Portfolio)

We have worked hard at this while we were young and had the energy so that we can spend our less energetic years not as concerned about our wealth and if we will have enough. I spend my working days working with folks worried about not having enough to survive. When they were young they said things like "live in the moment" or "life is short, what if you die tomorrow" well what if you don't die tomorrow, which is the more likely outcome. Now, for the most part it is too late for them to make up their lost time. Their stories in conjunction with my growing up at the poverty level forced me to decide long ago that I would not get in their boat and guess what... I'm already reaping the benefits at 29 years old, I just look forward to it getting better.

I really enjoy watching our portfolio and wealth grow by leaps and bounds each and every month, that to me is better than buying material things, although we have many toys (work hard play hard right) we just have our priorities in place. We want to create foundations to benefit others less fortunate than us down the road and cash and stock works better than toys when giving to others.

Have a productive day,

Jake Blake

Friday, February 9, 2007


"But note this important fact: The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stamped or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off his stock had no market quotation at all, for he would than be spared the mental anguish caused him by other persons' mistakes of judgement".

-Benjamin Graham

This is probably one of the greatest statements with regard to investing that has ever been. I could spend days writing about Ben Graham, however you would be much better off just reading all that you can about him and his investment strategies. In case you don't know, he was Warren Buffett's professor at Columbia Univeristy. Do I need to say anymore?

Wednesday, January 31, 2007

House or Portfolio?

I am writing today to give my perspective on the question that is constantly asked of financial consultants.

Q: Should I pay off my house or save the money and invest it?

A: Build up your portfolio

There are many circumstances that will alter my advise here, however it is up to you to decide what will be best for you. I have ran the numbers several times and unless you have a mortage in the 12% and up range (get a new loan) you will be more financialy free building up your protfolio. You can pay a little bit more towards your mortgage, like an extra payment a year. However putting the money into your investments will grow to a much larger amount as you approach retirement. I always ask people to do some homework and look at the increasing costs they will incure post retirement and the rate at which they are increasing. Example, I work with a gentlemen who is 61 years old and was just quoted $1,700 a month for health care coverage for him and his wife. That is for the same health care that his company provided for $95.00 a month. A free and clear home will not help if you get laid off, downsized or have to pay your own health care.

So my question to you is, do you have the kind of home that will pay that monthly premium? The answer is, no-one does. Why pay off your home when you don' t have substantial liquid assets yet (unless you do, then this article is not for you). Many people don't like having mortgage debt so they think they should pay it off right away. If you don't like the debt, don't take it on in the first place. Rent until you have enough to pay cash. Once you have enough, your principle's interest will pay the mortgage anyway. That is the beauty of this strategy. Then once the mortgage is paid off you still have income coming in. All you will have is a paid off house and hopefully some retirement income if you follow the prevailing wisdom and pay off your home so that you feel more secure.

Take the time to do some research and see the costs for folks currently retiring and what you should expect when you retire. The last thing you want to do is have to sell your home to move into your childs basement or guest room. Believe me it happens!

Tuesday, January 23, 2007

Cash Flow MGMT: Debt Repayment

Cash Flow is King!

Most folks I have worked with have never learned about cash flow and how important it is to your financial position. Whether you are building wealth or just living day to day. It is the blood of the financial body.

Today I am writing to those who have been struggling with debt repayment.

For the many years that I have been giving my clients financial advise I have been showing them a strategy for paying off debt that I developed when I was starting out. I read or heard that the best way to pay pay off debt is to start with the highest interest rate debt and work down from that. What if you lose your primary source of income however? Then how do you pay your $400.00 car payment. I can always come up with the $15.00 or $50.00 to pay the credit card minimum, but I will lose my car if I don't pay that note. So I started thinking about my situation and if the prevailing debt repayment wisdom made sense for me. I came to the conclusion that it did not.

The pay your highest interest first mantra makes sense if you have only credit card debt. If however, you have many debts such as student loans, car loans, personal loans and credit card loans, then it makes more sense to take a different road. Being financially free has to do with being in control of your financial position. If you lose you earned source of income, what will you do? So, start with the largest monthly debt requirement (i.e. a car payment). pay off that debt and then work your way down. If your credit card debt is much larger than the rest of your debts, then email me and I will be more than happy to discuss a strategy tailored to your situation.
Monthly Income = $1,000
Car Payment = $400 + 760
Student Loan = $200
Credit Cards = $160
Month End = $0.00
Take the burden of the largest monthly requirements off your shoulders as soon as you can. This frees up your cash flow giving you more control. If you get yourself into financial strain you can better handle the smaller payments even if you are building up more interest. At least you can get yourself in a position where you are able to meet your monthly obligations, which is much better than defaulting on any of them. If you have a substantial amount of high interest debt (much more than any other debt) you maybe better off getting that down to a more manageable level. However if you have substantial high interest debt, then it may be your largest monthly payment anyway.
I developed this strategy when I got out of college because I wanted to feel more in control of my current and future financial position. My thinking during that time was that when I have the big monthly requirements knocked out, I will be closer to financial freedom. No matter what, I can pay the minimum on the smaller stuff. Then one day it was all paid off. That is where you want to be-that is real financial freedom. There are of course more aspect to financial freedom and I will write about them in time.

Have a productive day,

Jake Blake

Friday, January 19, 2007

Friday Planning

Today I would like to write a little about planning. When buildling their budgets for the day, month and or year, most people fail to do what I believe is most important in the process. What works for me is planning out the whole year month by month. It is no excuse to forget about an upcoming bill. You should be aware of all expenses at all times. Also, you can come up with all the reasons in the world why you couldn't stick with a plan/budget, however at the end of they day the question is did you achieve financial success or not. Nobody cares why you missed the mark. You have to be tough and taking a passive approach to planning is bogus. If want to be serious about accumulating wealth, then you must approach it seriously. Those who come up with all these strategies to "stick with you plans" never make it. I have seen it a million times. The only way is to GET SERIOUS and do it. There is no excuse good enough to stop you from reaching your goals. There are too many examples of people before you who have achieved so much more while having started with so much less. They too had bad luck looming over them it seemed, then they took charge of their own lives and meraculously the bad luck dissappeared. So take out a pen and some paper (or in my case an excel file) and start building.

Now if you are going to get serious then this is what I do and I grow my net worth each and every month by more than most people save in years. I started with the dates of each bill due and then added the dates of all sources of income. This allows me to see what is coming in and what will go out everyday, month and for the entire year. If you build it on excel it is easy to make changes as things come up. Using a checkbook balancing system is not good enough. All that does is tell you how much you have or need in your account. It doesn't show you what will happen two or three weeks down the road if you spend an additional $50.00 on dinner when you only have $50.00 in your budget for that dinner. Build a template that has your monthly budgeted amounts built into it like (
My method is no different from what every successful bussiness does (obviously with some variation) and if you run your household like a successful business, you will become wealthy.
Start with that and I will add more about what I do in time.

Have a productive day,

Jake Blake