Personal finance and alternate sources of income

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Our traditional educational system has failed a whole generation on how to manage your money. It becomes painfully obvious when you think about how many financial gurus; a la Suze Orman, are out there selling millions of books and learning materials. Shouldn’t this be something that is taught to us in our schools and homes? Yes, of course, but let’s think about the context of where we stand in the modern world. Baby boomers grew up in an economy where manufacturing and skill were highly valued and used. They grew up with the promise of Social Security, Pensions, maybe a gold watch for the lucky ones. College cost a fraction of what it costs now, cost of living was much more in favor of the middle class when compared to the average income in those days. The economy evolved into a more service oriented one and the credit card was invented. Lending became easier and people gained a lot more financial leverage with looser financial regulations. 

Easy money and empty promises packaged in shiny boxes is tempting to anyone. The problem was that nobody in our educational system thought about teaching students about basic saving, personal finance, or credit.

People that aren’t equipped with this basic knowledge are rendered helpless to the big marketing machine of lending money for profit. 

Now that my rant is over, let’s look at the basic principles I’ve followed over the years. I AM NOT A FINANCIAL EXPERT, nor do I want to be, but I did recognize in my twenties that I needed to be financially literate to survive in our modern world. 

Here are some steps you can take to improve your personal finances:

Here’s an obvious one; if you work for a company that matches any retirement contributions like 401k’s , MAX your contribution up to what your company will match. NEVER turn down free money. Great rule to live by. You’d be surprised at how many people I knew in my twenties that didn’t take advantage because they wanted a bigger paycheck every two weeks. 

If you are self-employed, consulting, contracting, the same applies to you. Just because you are not getting an employer to match your contribution, you still get the benefits of compound interest and the tax savings from financial vehicles like Roth IRA and 401ks. 

The important lesson about saving for retirement is to save often and save early. The longer your money earns interest, the better off you’ll be in retirement. Compound interest is a powerful thing. 

A janitor in Vermont passed away a couple years ago and left his nest egg to the town in which he worked. That amount was over 8 million dollars. This man was a frugal family man that only spent money on the basics and learned how to invest. He amassed 8 million dollars by the time he died, on a janitor’s salary. Minimum wage hasn’t even reached $15 yet in most states. Just imagine how much you could accomplish by simply maxing out your retirement contribution. 

Here is the link to the story 

Most of the financial experts seem to agree that you should be saving at least 10% of your income on retirement. Those of you that don’t have student loans and expensive housing really have no excuse at all. If so, you should really be saving closer to 20%. 

Some of the best vehicles for this – 401k, Roth IRA, IRA, ETFs/Index funds. 

There are also some interesting new vehicles for this like Real Estate Investment Trusts, Real estate crowdsourcing, peer to peer lending, and platforms that act like hedge funds for us plebians. 

I haven’t really explored any of these yet but some of the promising ones I’ve seen are: Yield Street, Roof Stock, Titan, Realty Shares, Fundrise, Lending tree. 

They have been earning between 6-20% returns, depending on risk. 

I will be looking to dabble in some of these soon and will document my experiences. The drawback to these vehicles is that you don’t get the tax savings that 401k, Roth IRA, IRA have. However, any earnings will count as capital gains, which, get taxed at a lower rate than traditional income. 

Another interesting one that we are investing in is permanent life insurance. This can be a tricky one because there are lot of insurance companies out there with tricky marketing. 

My recommendation is to talk to someone in your network who seems to have their shit together about what they use. It helps to get referrals for insurance because you don’t want to be paying into an insurance policy for 30-40 years and have a fast one pulled over you. 

In any case, we use Northwestern Mutual, which has been around for over 100 years and has a strong financial history. I’ve heard that NY Life, State Farm, MetLife are good also. 

The way permanent life insurance works is similar to a savings account. You ask for a $ amount of what you’d like to be covered in the unfortunate event that you die. Expenses that you should think about getting covered for are – a funeral, hospital bills, mortgage, car payments, education. Based on your age, health history, they will approve you at certain costs. Like with retirement accounts, it helps to start early. Your rate/payment will be much lower if you start in your twenties than in your thirties or forties. You have 10 more years to pay off a policy and can spread that cost out. In any case, once you agree to terms on a policy, you generally pay it until your 60’s or whenever you feel that your family is financially secure to live on their own. All this time, you will be earning a compound interest rate of anywhere between 3-6%. The amount is even more if the company you choose pays dividends like Northwestern Mutual (I’m starting to sound like a commercial,I promise I’m not a spokesperson or making money off them). Those dividends can be put back into the policy and continue to increase the overall value of your policy. Once you reach an age when you are ready for retirement, you can pull from what’s called “cash value” from your permanent life insurance. All those payments you’ve been making over the years have been going into a piggy bank and accumulating a cash value. It typically takes ~5 years into a permanent insurance policy to break even of what you’ve paid/invested and what your cash value equates to. After this, the effect of compound interest takes over. 

For example, we started a policy for my son when he was born. We pay $200 per month into the policy. By the time he reaches 18, we will have around $80k in cash value. This estimation was based on an average interest rate of 6%, which, I admit is optimistic but how can I not be with the way returns have been lately. We plan to use this money to supplement any college expenses he may or may not incur (we also have a 529 for him). If we save enough in his 529, this could be given to him as a gift (downpayment on house/wedding/whatever..). Or, we can take it and use it for our own expenses since we own the policy. 

In the grand scheme of things, $200 per month is not a lot of money. Download a compound interest calculator and play around with the numbers yourself. It’s a great way to figure out your goals and set you on the right path. 

My final kernel of wisdom of this post is: millionaires average 7 streams of income. 

Most people have income from: employment, savings account (can you really call it income with current rates?), retirement account. What steps are you going to take to add to the number of income streams? 

DO your research , ask people in your network about what they are doing , get advice from a mentor or someone more experienced that you trust. Look into PASSIVE INCOME opportunities. A great blog I read to learn about this is 

Take steps to educate yourself through any means necessary. Go to the library and check out books about investing and entrepreneurship. 

Most importantly, if you are taking on a new venture, set money aside to use that you would be okay with if you lost it all. I am impulsive and a risk taker but even I know that you need a safety net, especially if you have a family that is counting on you. 

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7 thoughts on “Personal finance and alternate sources of income”

    • Hi Brenda, Thanks for reading! Feel free to comment on other topics you’d be interested in reading about. – Peter

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