Facing Fears, Resisting Greed & Investing Wisely

goal-setting

In business school, we all learn that investors tend to be driven by fear or greed.

“The President twisted his ankle… we look weak! China will attack soon. Quick! Sell everything.”

“This penny-stock is about to blow up! We’re going to be rich. Quick! Sell the house & buy every share you can with the proceeds.”

While these might be simplistic and exaggerated examples of most investors, it gets the point across.

Everyone has a mix of both represented, however, some of us lean towards one aspect more than the other. Either way, both attitudes will cost us in the long run. Either through safe investments eroded by inflation or aggressive investments decimated by risky practices. The key is to recognize which trait is dominant in you (and your spouse if applicable) and reign it in to maximize your potential.

For me, it has always been, and likely always will be fear. Fear of losing the principal I worked so hard for made me a CD/Money Market investor for everything but my retirement funds. However, as my family’s income and with it, financial security increases, I’m learning to take calculated risks that should, if executed properly, move me forward much quicker than I would through savings alone.

Note that I didn’t say anything about allowing the pendulum to swing completely in the other direction. I would never allow myself or my husband to put our future in jeopardy with thoughtless financial moves. In fact, we remain conservative in our strategy, keeping our emergency funds split between CDs & Money Market accounts for easy access and insurance on our principal. However, I am coming to terms with the fact that it’s ok to only have 6 months of living expenses in the bank. 2 years might be a taaad bit excessive when there are 2 working adults with no known health problems, in relatively secure, good-paying jobs and 3 additional sources of income. Maybe, just maybe, we can take most or all of the savings above the 6-month emergency cushion to invest into assets that will further increase our cash flow.

Think of your flaw as an investor and how you can overcome it to improve your wealth. It will change your life.

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Why Your Sources of Income Matter

As a first generation American, I grew up in an immigrant family where working more than one job is the norm. In fact, if you google Caribbean people and multiple jobs, there are sufficient jokes on that topic to lend some credibility to the stereotype.

Watching several people in my family and close friends juggle their side hustles often temps me into seeking additional sources of income. However, what makes me different from most of those who modeled the weekday-weekend job lifestyle for me is that it would be a choice and not a necessity. As a highly educated and well-paid young professional with limited debt and a two-income household, I do not fit the profile of my elders who moved here with limited skills, no education or support system and no knowledge about their right or ability to negotiate their salary. They often had no choice but to pick up a part time job to bridge the gap left by the low-pay of their full time job. But that hasn’t stopped it. Since I’ve graduated college, I’ve worked part time on the side, not once, but twice because there are some real advantages to working 2 jobs. I’ll address my experiences in more detail at a later date. But first I want to talk about the limitations.

Besides being continuously busy, one of the other downsides to relying on a second job to either make ends meet, is the fact that you have officially maxed out your earning potential from a labor perspective.  If you work 5 days a week at your office job, and put 2 days in at the mall, you have no more time and energy to trade for money. At least, not if you want to sleep, have a good family life, and prevent your health from deteriorating.

On the other hand, if you invest in the stock market, write a book, or own rental property, you can increase your sources of income indefinitely, regardless of the time of day. Your options become limitless, save for available capital to invest.

Does that mean you shouldn’t pick up a second gig if you can? Of course not! In fact I encourage you to. But that should be a short-term goal. Perhaps a job you do to build enough capital to invest into building alternative income streams. Or maybe you can do something seasonal so you can indulge during the holidays without dipping into your day-to-day funds. Either way, my point is that a second job should never be a long-term or permanent strategy as it does not build wealth. It is merely a stepping stone to something greater as it creates disposable income to be put to good use.

My goal is to give myself 2 raises in 2017 that are not controlled by my full time employer. I will not accomplish that by get 2 side jobs. The first raise I’m going give myself will be in the form of a rent increase for my current rental property. My other raise will be once I acquire another cash flowing rental property where the income from rent will exceed all operating costs. I’m looking to bring in an extra $500/month.

Why do your sources of income matter? Because not many people can decide they will make an extra $6,000 a year without lengthening their work week. So you have to decide: how much more do you want to work?

Get Rich with Solar Panels

Ok, maybe you won’t get rich. But you’ll like the money you’ll save and you might even save enough to invest in a high-yield dividend fund. Before I even get in the weeds of it all, I’m going to show you some info my most recent bill from my electric company (NStar or Eversource, whatever they’re calling themselves these days) so you can see the real life example of what renewable energy can do for you.

homepage

Home Page View of Account

 

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2-month Comp.

 

cost

Charges

 

usage

Year-to-Date Usage

The first image is what I see when I log into my account. That’s not a piece of lint on your screen. It’s a minus sign. They owe me $50. I won’t see that money in cash, but it will be kept as a credit on my account to off set any bills I may have, which will inevitably happen in the short winter days. Yesterday (9.26.16) would have been my due date, but since I don’t have a balance, I didn’t have to make a payment and I got to keep that $150-190 I normally would have paid them. Maybe I’ll put it towards my student loans

The second image is a 2-month history (this month and last month) of my account activity. It helps me compare my previous usage and bill to the current charges. I’ll reiterate: this is not a drill! My usage for the 2 months you see is indeed “0”. Technically it’s a negative number but for their billing purposes, it’s zero.

The third image is the cost of my electricity. They charge you a delivery fee as you have their equipment (meter) and are still connected to the grid. However, at 18 cents/kWh and me producing 300+ more than I’m using, my credit exceeds even the delivery charge granting me the credit.

Finally, you see the YTD history of my usage. The solar panels were installed mid-June and had to go through an inspection before they could be turned on in the last week of June. This makes my first full month of “free” electricity July. As you can see, I haven’t had any usage since. As the days get shorter and the weather gets nastier here in New England, I anticipate that I’ll be paying again soon, maybe sometime in late October, early November. However, as long as there is sun, I will never be using as much power as I’ve used before.

Here are my estimates for 2017 which will be my first full year of having solar panels (I’ll be estimating an average of a $50 credit for the more fruitful months, break even for the lean months and an average of $175 for all full bills):

Jan – Full Bill

Feb – Full Bill

Mar – Full Bill

Apr – Break Even

May – ($50)

Jun – ($50)

Jul – ($50)

Aug – ($50)

Sept – ($50)

Oct – Break Even

Nov – Bill fully covered by accumulated $250 in credit

Dec – Bill partially covered by remaining credit balance

Yes, things are looking good. With a 30-year warranty on the panels and a 15-warranty on the inverter, this may very well be my life until 2046: $600 in electricity costs. When are you taking the plunge?

Here are some important notes about my usage:

  1. We moved into the house Christmas week, which shows an artificially low January total.
  2. Yes, I am aware that I use a lot of electricity (pre-solar), however I am still below the average American household which was estimated to be 911 kWh/month in 2014. Despite that, my house is bigger than the average house at close to 3,100 square feet and my entire house runs on electricity (electric range, washer, dryer, boiler, pump for the well, central AC, hot water heater, etc.) meaning that even when I do something as routine and necessary as flushing the toilet, I use electricity.
  3. This year sucked almost as bad as last year. Despite the minimal amount of snow we had, there were some really cold days in the single digits and even in the negative. So we ran the heat longer and higher than we normally would have.
  4. Finally, a new home means some adjustments. We had to learn the house because we had just moved in. We often had lights on that we didn’t know were on because we didn’t know they existed. Sometimes, we couldn’t even figure out how to turn them off. We would hit 4 or 5 switches before we figured out which one was the flood light on the side of the garage. This year we hope to do better to maximize our panels.

If you want to see pictures of the actual project, visit my Instagram page @karibefrost

Student Loan Update – September 2016

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Boy, has it been a while since I’ve blogged. It’s been a really busy summer for my family, and while some of our activities haven’t all been fun, these past few months have been really good for us, both on a personal and financial level. As I previously mentioned, we were working on getting our solar panels up and running and I have good news on that topic, but today, it’s about the thorn in the sides of millions of degree holders: Student Loans!

I decided that now would be a good time to do an  update as I am 3 months shy of the 1-year anniversary of when my loan went into repayment and 3 months past the 1-year anniversary of my graduation from Business School. I have been super aggressive about paying my loans as well re-amortizing my balance to update my minimum monthly payment and it has paid off. Here are the results.

12/18/2015 (initial terms) 3/29/2016 9/27/2016
Monthly Payment  $                  395.00  $                         305.00  $                         290.00
Principal Balance  $            39,748.00  $                   27,301.00  $                   24,656.00
Repayment terms 120 months 114 months 109 months
Interest Rate 5.41% 5.16% 5.16%

Monthly Payment: I have decreased my monthly payment by over $100/month in less than a year. I am free to continue making the $395 payment, however, the extra now goes towards paying down the principal which will save me a bundle on interest. It is particularly important for me to save money on interest (besides the fact that it’s good money habit), as my income rises and my ability to deduct the interest phases out. In addition to interest savings, if I run into difficulty and I need to redirect those funds elsewhere, that’s fine!

Principal Balance: That’s good old discipline and self-control at work. Every windfall whether it was a tax return, bonus or raise, it was directed to making payments in excess of principal. That’s a nearly 40% pay day and an average payment of over $1,600/month! Has it been easy? No, but I will reap the rewards 10 folds when I’m free in less than 2 years.

Repayment Terms: That’s how long my loan servicer planned for me to take to repay them: 10 years. I don’t think so. Besides a loan securing tangible, real assets, I will never have a decade-plus loan. I have not only cut my monthly payments, I have cut down on my official repayment time! The original terms were predicting I would be making my last payment in December 2025. The extra payments I made in as of March 2016 had cut that estimate by 3 months and put my final payment in September 2025. And that’s the servicer’s estimate, not accounting for any additional payments I might make. I’ll let you in on a little secret: we’re less than 6 months away from “tax season”, what do you think I’ll do with any refunds I may get?

Interest Rate: This one is easy and I can’t take any credit for it. By setting up automatic payments for the minimum amount due, they give you a discount of 0.25%, which will save me a bit more money over the life of the loan.

I hope your debt repayment plan is on track, and if you’ve fallen off the wagon, don’t worry. Better late than never. We’ve all stumbled.