It's been one heck of a bull market. You can tell because countless blogs and websites dedicated to the concept of FIRE have cropped up like crabgrass in July on a poorly managed lawn. FIRE... also known as Financial Independence & Retire Early. A person who strives for FIRE typically lives an austere lifestyle in order to accumulate a massive nest egg. Once this is done, he or she can leave the workforce way earlier than normal and live off the investment income for the rest of their lives. I am not against this concept at all. However, before letting something consume your life, sometimes it's worth stepping back and putting things in the proper perspective. Here are two interesting passages from the Gospels. You don't need to be a Christian in order to appreciate them:
0 Comments
If you do an internet search for renter's insurance you will find plenty of articles (of which a disproportionate amount are written by insurance companies) telling you that renter's insurance is definitely worth it. Most of the internet agrees that it's a good idea, yet in 2018 only 46% of renters had renter's insurance compared to 91% of homeowners [Source].
I will take the opposite point of view and argue that renter's insurance is a racket by the insurance industry and in most cases is a waste of money for the policyholder. Many in the personal finance community often preach about the importance of having an emergency fund stocked with several months worth of living expenses in the event of a job loss or any other unexpected financial shock.
Those of us who own a house, especially an older one, are no strangers to the occasional large financial outlay. It's not if something breaks, it's when it breaks. A job loss may or may not happen, yet it's still important to have an emergency fund. If a large home expense will most certainly happen, shouldn't we be prepared for it too? In the first three sections of this series, I discussed the three big annual financial statements that publicly traded corporations are required to produce: the Balance Sheet, the Income Statement, and the Statement of Cash Flows... and how we as individuals can do something similar for our own finances. Along the way, I also provided simple examples for Brian, a fictional recent college graduate.
In this final part, I will present a more complicated and realistic example, that of a husband and wife with a house, a mortgage, a stock portfolio, and an investment property. Did you know you that a business can have a positive net income, but still be bleed money?
In Part I we talked about the Balance Sheet (your net worth) and in Part II we talked about the Income Statement. The problem with the Income Statement is that it only shows your expenses... and things like paying down the principal portion of your loans are not expenses. If you rely solely on your Income Statement to do your budget, you could be in for a rude surprise if you carry a mortgage. This is where the Statement of Cash Flows comes in. Your household isn't really much different from a business. You generate revenue (you and your spouse's salaries, for example) and like a business, you also have expenses (rent payments, grocery bills, etc). Any good business owner or CEO knows whether his company is making or losing money. If someone asked you if you made or lost money last year, would you know?
In Part I of the Making your own financial statements series, I talked about how to calculate your net worth by replicating the first of the three reports that make up a publicly traded corporation's Financial Statements. In this part we will discuss the second report, which is called the Income Statement. I'm sure at one time or another you've heard someone say something like... "Wow! Bob's business is worth $3.5 million." or "Roger's business is no good. It loses $2 million a year!" or "Bill Gates is worth $90 million."
Did you ever wonder what your net worth is? How much money you're making and what you're spending it on? Where you've been going financially over the past few years? If so, you should do an Annual Report on yourself. So what exactly is it and how do you do one? If you think this article is going to be about the hottest new stock or cryptocurrency... you are mistaken. That's because the "best investment ever" has nothing to do with the financial markets at all. In life, there are a few investments you need to focus on first before you even worry about stocks, bonds, real estate, or bitcoin.
One of which is your health. What's the point of busting your hump your whole entire life and accumulating millions of dollars for your golden years if you're going to spend two thirds of them in a nursing home? Your mortgage rate is 3.75%. The stock market returns 7-10% on average (depending on who you ask). You'd have to be an idiot to pay extra on your mortgage when you can make so much more in the stock market.
Right? There have been many statistics published in the news about how more and more millennial adults are still living with their parents. More so than previous generations. As this is an investing and personal finance blog, I would like to focus on the merits (or not) of this strategy in order to save money early on in your career.
Is this a smart financial move? Or does it turn you into a loser? |
Broken Ticker
An alternative minded Investing and Personal Finance blog Archives
February 2019
Categories
All
|