March 26, 2008

Building Wealth | Passive Income

Building Wealth - Passive Income - Personal Finance

Building Wealth includes many things: reducing debt; planning for retirement; taking advantage of tax rules; passive income; and expanding your income base. This post is about expanding your income base, and the things I have planned to expand my income base.

Blogging for Money Making Money Online

There are a ton of ways to make money online, some of them good, some of them bad. I am following a method I picked up online (for free - if you have to pay for it, it sadly, is probably a scam) from another blogger. From what I've learned so far, it is not complicated, although it does take some work at the beginning. It involves setting up blogs, getting a good page rank, getting visitors, and selling them stuff when the content isn't exactly what they are looking for. If he were reading this site he'd tell you this isn't the right thing to do, but you can learn about the finer points of making money online by visiting his site (he will note that I made his link a quality one, though).

I am still in the initial stage of this, and still getting my mind around what needs to be done to be succesful using this method, so I don't have a lot of success at this point. But I'll keep you posted.

Working a Side Job to make Money.

I am an attorney, and my job allows me the opportunity to utilize my talents outside of my day job for the benefit of myself. This can be an option for many others too. It just takes some thought about the skills that you have and how you can apply them outside of your job to make a little extra cash. Often this means consulting, coaching, or some kind of teaching.

I am a property attorney, with a majority of my work surrounding acquiring properties, drafting purchase contracts, and condemnation and eminent domain. Click on the link to check out that site. This allows me to help others going through the real estate process, whether it be in condemnation, the purchase or sale of a house, or any other property issues that might arise.

This too, is a burgeoning enterprise, just getting started, so I don't have a lot to report. I promise to keep you updated though.

Flipping Houses for extra money.

I have also taken to flipping houses for extra money. You may ask how that is possible with the housing market in the state its in today, but I think this is the perfect time to get into it. The extent of my exposure, despite my great feelings about the market, is small. But I don't want to get in too deep.

Right now I am flipping one house, the one I live in. It is almost finished, and when complete, should make about $20,000 profit. This isn't bad for a first effort, and the goal with this flip is more to learn what I'm doing, become acquainted with contractors and home repair, and have my house fully paid off in a couple of years (I plan to take the profit from this house and move over to a similar house, doing the same thing, until I have no house payment - I think 4 years should be enough time to reach my goal).

Online Poker.

Believe it or not, there are a lot of suckers out there playing online poker, just waiting to give you their money. All it takes is a little practice, some patience, and enough self-discipline not to chase cards, and you can actually make decent money playing poker.

For my exploits, I've started with only $10, and hope to build that up to $1000 by July. To to that I'll start playing with very small stakes, hopefully building my experience as I build my bankroll. I'll keep you posted on this progress as well.

Online Sports Betting.

Some people also believe you can make money betting on sports online, NFL betting. I'm still an amateur, but I know if you do it right you can make decent money betting on sports, particularly if you use NFL betting software. All you have to do lose all your money making stupid bets, like parlays and the like, and concentrating finding good match ups that you can take advantage of.

Making More Money is Easy. It just takes drive.

There are no easy money answers. Everything takes work, discipline, and effort. Even scamming people takes time to learn. If you want to make more money, build your wealth, and stop living paycheck to paycheck, take a step back, evaluate your skills, and put them to good use. Before you know it, you'll be making a ton of money.

March 13, 2008

Personal Finance | Eliminating Credit Card Debt | Debt Snowball

Building Wealth - Personal Finance - The Debt Snowball

In my last post, I talked about debt snowballs and eliminating credit card debt. In this post, I want to outline my own personal debt snowball to provide not only an example of how to do it, but to provide you some motivation to do it yourself. It really doesn't take that long to put together, and once it's up and running, it's very easy to maintain. This post is all about building wealth and personal finance. Furthermore, if you are wondering how to be frugal, this is a great start.

Debt Snowball Spreadsheet

To keep yourself on task (and motivated to continue the project) the first thing I would do (after compiling all of your credit card debts) is put together a spreadsheet. I use google docs spreadsheet. It's free, it's easy to use, and you can access it from any computer.

Step 1 - Dates

In my spreadsheet, I have DATE up in the top left hand corner. Down the first column, in the next space I have "beginning balance", followed by a blank cell, followed by the rest of the months in the year. After that is a blank cell, followed by "current balance," followed by another blank cell, then "original owed," and finally "current owed."

Step 2 - Labels

Going across the top row I have each of the names of the credit cards/debts I have (6 total). Before getting to this step, though, first you need to list your debts in order, from smallest balance to biggest balance, from left to right. This is how you would enter the names of the debts into the spreadsheet in the first row (rows go across, columns go up and down). If you pay interest on your debts, leave two columns in between each of the debt descriptions.

In the next row, enter the current balance of each of your cards (it should correspond with the "beginning balance you entered earlier"). In the row right next to the balance, put the minimum payment, or just over the minimum payment, except in the first column. In that column, I want you to write in whatever it is you have determined you can pay, which hopefully is at least 3 times your minimum payment (for me, my minimum payment is $50 and I'm paying $650 - put in the most you can comfortably put toward it).

After the balance row, under the row you actually entered your current balance enter "payment." In the row right next to that put "interest." It is in these columns that you'll document your monthly payment as well as the interest that has accrued on your debt. This should keep your credit balance up to date.

Step 3 - Formulas for Calculating Progress

Next, go down to the current balance row and in the payment column enter the formula so your monthly payments will be subtracted from your balance but your interest will be added in. In Google docs it looks something like this: B2-SUM(B4:B14)+SUM(C4:C14). The letters and numbers refer to the cells you want to add up.

Almost done. The next step is to define your original balance. Do that in the cell right next to the one labled "original owed." That formula looks like this: SUM(B2+E2+H2+K2+N2+Q2). This will add up all the original balances.

Finally, determine what your current total balance is (you don't have to do these two steps, but I think it really helps to see that balance shrinking so rapidly). That formula looks like this: SUM(B16+E16+H16+K16+N16+Q16). Once this is complete, all you have to do is fill in the corresponding cells every month and the math will be done for you.

Remember though, that when the first debt is paid off, you roll all that money over into paying off your next debt. By the end you should be making a huge monthly payment toward that big balance (mine will be over $1000 in the end).

My personal debt snowball

Finally, to give you an idea of where I currently stand, and to make updates worthwhile, I'm going to give you my current debt standing. As I said before I have 6 outstanding balances originally totalling $30,693.11. The current balance is $28,667.96. My original balances are as follows: $3,197.41; $4,516.20; $5,819.77; $7,110.55; $8,564.00; and $1,485.18 (interest free). On those balances I pay $650; $100; $100; $120; $80; $135.93. If you add all that up, I should be completely debt free in 2 1/2 years. At that time all this money can be put someplace much more valuable!

Hope everyone learned a little from this. I plan on updating it from time to time to let you know my progress.

Personal Finance Debt Snowball Credit Card Debt

March 11, 2008

Personal Finance | Dave Ramsey "The Total Money Makeover" Review

Building Wealth - Review of Dave Ramsey's "The Total Money Makeover"

A sucker for personal finance books, both the get rich quick kind and the get rich slowly kind, I couldn't pass up checking out this book when I was perusing at the book store. As the cover implies, it is your traditional get rich by scrimping, saving, getting out of debt, building wealth, and throwing as much money as you can into retirement (good advice by the way - just not worth paying for). If you are wondering how to create wealth, you might want to check this book out.

Although it is full of much of the same information, he did have some points worth repeating. Essentially he laid out seven steps toward "financial freedom." Some of them are good for everyone, some of them you should take with a grain of salt. Let's take a look. All of these are supposed to be done in sequential order.

1. Save up a starter emergency fund of $1,000.

This one actually makes a lot of sense and is something everyone should do. This fund is essentially untouchable unless an actual emergency arises. Things that would not qualify for emergencies would be Super Bowl parties, a chance to play 18 at that exclusive golf course, a sale at Macy's, or a chance to score those Bon Jovi tickets you've been searching for. Things that would: car repairs, house repairs, hospital bills, etc.

It is astonishing how hard it is to dig yourself out of financial ruin when one of these emergencies arises. Not only does it make it feel like you'll never get out, but it actually does make it harder. Imagine the difference in putting $400 of an emergency fund toward a car repair versus $400 on a credit card. The implication with a credit card is that you don't have the cash on hand, starting once again that cyclical fall into debt.

This is important for everyone, and should be done.

2. Debt Snowball.

The next thing prescribed by Dave Ramsey, and another I completely agree with, is beginning your own debt snowball. What is a debt snowball, you ask? A debt snowball is simply a term used to describe a method of paying down credit card debt. It works like this (there are actually several ways to do it, but this is the one Dave recommends and the one I use): line up all of your credit card balances and their minimum payments from smallest to largest. If you are paying more than the minimum balance (or just over it), take that money out and document it so its available. Next, see if there is any additional money coming in that you can allocate to credit card debt. Put that money in the same pile as the pile with the extra money. Finally, put all your credit cards away and stop using them (you really don't need them).

Once you've done this it's time to get the debt snowball rolling. All you do is take the smallest balance and put the minimum payment and all the other money you have over and above the minimum balances into that smallest balance. When that one is paid off you move onto the next balance, putting all the money from the first into the second. In no time at all you have paid off your credit card debt!

This really works and I would recommend using this method if you want to get rid of credit card debt and are looking for a way that works fast and provides postitive reinforcement (there is nothing better than paying off that first card!)

3. Finish the emergency fund.

After the credit cards are paid off, it's time to move on to building up that emergency fund so you can really take a financial hit and still stay afloat. Dave Ramsey recommends 3-6 months expenses in your fund, but I'd stretch it out to 6 if you can. There is nothing that helps you sleep at night like knowing you are financially secure in the event if a tragedy. I'd recommend this one too.

4. Invest 15% of your income in retirement.

Again, I say go on ahead with this, especially if you are young. The more you save now, the plusher your lifestyle (and your kid's kids lifestyle) will be in the future. And the great thing is this shouldn't be that hard to do because you can apply the money you've been paying off credit cards with toward this. I think you'll find it won't take much more to get up to 15%.

And this is a little more specific than Dave discussed, but make sure you are maxing out your 401K and Roth IRA contributions first. These will be discussed in much greater detail later, but not only is much of this either tax deferred or tax exempt when paid in, with the 401K your employer likely matches your contribution up to a certain percent. That is free money for you for doing nothing! Take the time to learn about these savings vehicles and become familiar with them. It will pay off enormously in the future.

And while I'm telling you where to go, let me tell you where not to go. Savings accounts with your local branch are the worst place to store your money. The interest rate is not high enough to make it worthwhile, particularly with all the high-interest savings accounts available. If you need the safety of a savings account, make sure you have a competitive interest rate (nothing below 3%).

5. Save for college.

Now is where Dave Ramsey and I start to drift apart. I am all for saving for college, and Dave recommends using an education savings account or 529 plan, which is sound advice, but there are other things you can do with your money that can provide a greater return and still pay for your kid's college in the end.

Alternatively, taking some of that extra money and putting it into making sure your kid has a solid elementary, middle, and high school education is also an option. College is lost on so many who don't have the foundation to excel and succeed there. Give your kid a head start and he or she will likely be getting paid by their college of choice to attend (and there are tons of scholarships available, don't forget to look).

6. Pay off your mortgage.

Again, I'm going to have to diagree with Dave Ramsey on this one. Mortgages, like student loans, are great to have, especially if you are paying them on time. They provide a great source of credit information for lenders and anyone else who relies on credit score to evaluate your risk tolerance and the interest rates are usually so low you can invest the extra money you would be paying toward your mortgage some place else and see greater returns (isn't this what building your empire is all about?).

In following this plan, I'd probably skip this step. It isn't a financial step backward, put to me it feels like treading water instead of swimming ahead.

7. Build Wealth.

Now he's talking. Building wealth means many things to many people. For some it is getting that vacation home, for some it's starting or investing in that business idea you've always had, and for others it is simply accumulating enough wealth so you can do whatever you want whenever you want.

This blog's focus is on building wealth, which for me includes all of those things previously mentioned as well as building several streams of passive income so while I am playing I am continuing to build more wealth. I'll touch more on building wealth in future posts, but I'd highly recommend focusing on this immensely when you have time (even before you've completed some of your other steps, if you can).

All in all, I'd say Dave Ramsey's book, The Total Money Makeover has a lot of great content. Some of it is original and fresh, but most is information everyone has already heard before, or can hear right here. It's not a bad book for the shelf, so if you have the extra cash, I'd pick it up and take a look.

Personal Finance Building Wealth