How I Learned To Stop Worrying and Love Dividends

Having learned the true value of cashflow investing, I began studying various asset classes to determine where I should invest. I read about real estate and plan to get involved in rental real estate at some point, but I didn't have the level of working capital I would need to properly start in the world of rental properties.

One evening, I happened to be watching an episode of Charlie Rose and he had, for the hour, Warren Buffet as his guest. If you don't know who Warren Buffet is, let's just say, he's the richest person in the world and he did it all through brilliant stock investing. In the interview, Buffet did exactly what Buffet always does. He simplified the concepts of investing in such a way that a 10 year-old could understand it. Does the company sell a product that a ton of people use on a regular basis? Then it might be a good investment. Easy.

Well, mostly. This at least gives you a solid lead on companies that you want to research further, but you still need to know how to analyze a stock. I needed to know how to analyze a stock, utilizing Buffet style assessments. That lead me to a book titled Buffettology.

Written by Mary Buffet, a former daughter-in-law, who may be a little sleazy for using her married name to sell books, Buffetology takes a look at historic Buffet investments and explains the types of analyses applied to each of these companies. The book is rock-solid. She clearly explains the calculations involved and makes it very easy for the reader to perform the same functions when looking at companies for investment.

The primary advantage stocks have over real estate is this; a rental property can cost $200k, while a share of Pepsico is $56. You can start earning a decent return for a much smaller investment. It also allows someone like me to get started investing, despite not having a considerable capital base.

So, Kiyosaki has taught me that I need to invest for cashflow and Buffet has taught me how to invest in stocks. How do I make these teaching coexist? Easy. By investing in stocks that not only pay dividends, but increase those dividends by a fair amount each year.

Next post: How I Find Dividend Stocks

Personal Finance Pop Quiz

Here's the lesson for today.

Let's say there is an item that costs $100, but is on sale for 50% off. If you purchase this item, how much will you save?

Save??!!?? You just spent $50. How is that saving? You may be receiving great value in that $50 purchase, but don't tell me you saved $50.

Thus endeth the lesson.

What Got Me Started

A few years back, while between jobs, my buddy Richie invited me to join him at a Learning Annex event called the Real Estate Wealth Expo in downtown L.A. If you've been to one of these, then you'll know that most of the speakers are trying to sell you some sort of get-rich-quick program, many for thousands of dollars.

The real benefit for me were the keynote speakers. Suze Ormanwas brilliant, Donald Trumpwas quite entertaining, but Robert Kiyosakiwas the one who really caught my attention. I liked the way he talked about personal finance and decided to read his book Rich Dad, Poor Dad.I was already familiar with the book, having previously worked in a bookstore, but never knew how much it would change my thinking until I actually sat down and read it.

Prior to reading Rich Dad, Poor Dad,I was a chronic saver. My plan was to purchase a home as young as possible and live there forever. Then the L.A. housing market went insane and I was priced out of purchasing anything. In my area, starter condos were selling for $300k. Now, I'm 30 and still renting.

The moment I finished the book, I knew things would be different. My way of thinking was completely changed. I proceeded to read almost every book in the Rich Dad series, maybe 13 in all. I couldn't get enough. The greatest aspect of Kiyosaki's teachings is that he doesn't tell you what to do, but how to think. They say that law school doesn't teach you the law, but how to understand law. I feel Kiyosaki is much the same thing.

At this point, I still didn't know what I wanted to invest in.

Next post: How I Got Into Dividend Investing

Getting To $1,000,000 (Love Those Zeroes)

My soon-to-be sister-in-law (is that a hyphen record?) asked what this blog is about; saving or investing.

In response, I would like to perform everyone's favorite task. We're going to do some math.

As stated, I make $13.00 per hour. If I work 40 hours per week, after one year, I will make $27,040. In order to earn $1,000,000 working, it would take 37 years. This would be pre-tax and I wouldn't be allowed to spend any money on frivolous stuff like food.

So, after saving $1,000,000, I would be 67 years-old, wanted by the IRS and awful cranky from not having eaten in four decades.

That plain fact is, in order to truly get anywhere financially, you must invest. Saving has it's place, to be certain, but only if you have a purpose for those savings. If you are planning a major purchase, you must save for that, but if you are seeking financial freedom, those savings will only give you the satisfaction of a pretty bank statement.

Let's say you have $50,000 sitting in the bank and assume it is in a high interest bearing account. Right now, you'd probably be receiving a yield of 1.5%, or $750 after one year. Not bad, but that wouldn't even pay one month's rent. It's even worse if you have a basic savings account, maybe as little as a couple hundred per year.

Now assume that same $50,000 is invested in a dividend paying blue chip stock like Pepsico. You would have 885 shares yielding 3.2% and paying you $1,593 after one year. But here is the primary difference. Pepsico raises their dividend every year, typically in the area of 12%.

Take this same example and jump 6 years into the future. Based on what we know, we can assume that Pepsico will be yielding nearly $3,200 each year. Your bank account? Probably still getting less that a grand.

So, save for major purchases, but invest to truly find financial freedom.

A Little About Me

As we begin this blog, it seems to make sense that I should tell you more about me.

I am 30 years-old, living just outside of downtown Los Angeles. I currently work as a manager at a specialty retail store at the local mall where I make $13 per hour, currently averaging about 35 hours per week.

I live alone in a one-bedroom apartment that costs me $920 per month. While this may seem outrageous to many of you (it is), this is actually a competitive rate for my area. Because of the cost of living, I do not own a car, have cable, a cellphone or high speed internet. My spending is fairly restrained, but I do have a penchant for DVDs.

As for alternate income streams, I've been playing quite a bit of online poker, mostly pot-limit Omaha hi/lo, for those who know poker. I was on a pretty good run, but recently hit a wall and have been running in place. I also have a small stock portfolio, containing shares of Pepsico, Johnson & Johnson and USBancorp. I did make a couple investments on the peer-to-peer lending site Prosper, but currently only have one active loan.

Most importantly, I am engaged to a wonderful woman who has two wonderful (mostly) children. We are in the midst of a long engagement and we are planning a move to Texas in the near future. To say that my life will change soon would be an understatement. Expect updates, as these changes will absolutely impact my finances.

That's it for now. Next post will include more information concerning my financial history.

And So It Begins

The first post. Here we go.

I figured it would be best to discuss what this blog will be.

This blog will allow you to follow my journey as I make my way towards financial independence. I use the term millionaire in the title, but that's not really the goal. My true goal is to reach a point through investments that I no longer have to fret the day-to-day need to work for someone else. That just makes for an ugly title.

Don't get me wrong, I enjoy my job. I work with good people and have fun at work, but we all know that when you work for someone else, your hours can be cut, as mine have, or you could be laid-off entirely, as many are dealing with right now.

I haven't found a blog quite like this available in the blogosphere. The one I found that was even closely similar was written by someone who has a six-figure income. I wanted something for the rest of us. To show that it is still possible, though maybe much more trying.

I'm hoping that this chronicle will turn into a shared journey, where you, the reader, will participate, sharing the experiences of your own individual journey. It'll be interesting to see if a community can grow around this. I look forward to it.

So, welcome and thanks for reading. Hopefully, you're jumping in on the ground floor of something special.

P.S. - Net Worth figures coming soon!