Personal Profitability

Personal finance for hustlers and entrepreneurs

Grow Your Weath

Leasing vs. Buying

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At some point, you are probably going to need a new car. For young people, this is usually the first major purchase (thousands of dollars) that you will make. You have three options: Buy in cash, lease, or buy with a loan.

The best option is to just buy the car outright in cash. This will be the least expensive option, as there is no interest or fees associated with the purchase. This, however, may require you buy a less expensive car. It is up to you whether or not this is worthwhile.

Leasing is another option. Do not lease a car. I will say that one again to make sure you heard it. Do not lease a car! Leasing is renting. You have no ownership in the car. At the end of the lease, you have nothing and have to give the car back. Don't pay someone to borrow a car.

The third option is to take out a loan. Loans require a down payment and a good credit score. I have a loan on my current car. Many people hate debt, that is okay. If you feel that way, don't take a car loan. I, however, could not afford a nice car at the time, but could afford a big chunk of it. In addition, I took a longer term loan to lower my payments. Even though I have low payments, I usually overpay my loan. I paid double my monthly payment for a while, and now pay about $80 extra per month. These accelerated payments help me lower my interest payments over the life of the loan. I am about a year ahead on a five year loan (one year in).

So, you really have two options because you don't lease. You can pay for a car in cash or take out a loan. Cash is an obvious first choice. Loans do have a perk though. Installment loans are great for your credit score when you pay on time. My score has gone way up since I started with my car loan. However, there are interest payments.

In the end, it is up to you. Either way, make sure it is a car you can afford. If you don't make a lot, don't buy a super expensive car. People do not become wealthy from spending money.

My First Trade and What You Need to Know About Buying and Selling

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I started my brokerage account, and now I am trying to figure out what to do with my first $500 in the market. (I have already been investing in company stock and a fund in my 401k. For more see my intro to investing.)

I entered my first trade Friday morning, and it was exciting, though it has not executed yet. I have been following a few stocks recently, and I picked a bottom for one of them. I decided to enter a limit trade on the stock.

If you don't know what a limit trade is, this is a good time to keep reading. If you do know what a limit trade is, you should keep reading anyway.

There are several types of trades you can make at your brokerage. The most common are market, limit, and stop.

A market trade is a purchase at the current market price. Your stock broker will purchase the desired number of shares as quickly as possible. If the price is on the way up or down, you get it at whatever they can get it for. Usually large firms can guarantee the current price for you at the time you enter your trade.

A limit order, what I did this morning, sets a limit on the purchase price. For example, if you are watching a stock trade around $7.50 but you would not pay more than $7 for it, you can enter a $7 limit. When the stock hits $7 per share, the trade will execute. From there, the stock can go up or down in value, but you bought it for $7 or less. If it never gets down to $7, you don't buy it. My limit order has not executed yet, and may never execute. I think, though, that the stock is worth more than the limit I entered and it can only go up from there. I am protecting a loss.

A stop trade order is a protection barrier from a drop. If you own a stock that is trading at $20 per share, you can set a stop anywhere below that $20. If you enter a stop at $17, the stock will automatically sell if it hits $17 or below. A stop prevents losses below a certain point. If the stock rises in value you can cancel the stop and set a new one at a higher price.

Knowing how to use these tools is vital to making money, and not losing money, on the stock market. While we never know what a stock is going to do, we can set our trades to protect ourselves. If you use a limit order to buy a stock at $2 and watch it rise to $10, you can set a stop at $8 and sleep easy knowing you made at least $8 per share. In that scenario, or any other, make sure to trade smart and diversify your portfolio.

In the long run, the market always goes back up. Stocks are down, it might be a good time to start buying so you can sell high later.

My Automated Plan

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I keep telling you how you should invest, stop spending, and do more for yourself financially. I can not justify doing so without doing so myself. I want you all to see how I am doing it today.
That is my breakdown. You might note that I did not include a budget for my living, fun, and other savings. That is for next time. I did want you to see, however, that I do put 10% into investments first. The trick to automating your investing is that you can live on what is left. If you are feeling a crunch, make a lifestyle adjustment.

A very rich man once told me that the trick to being happy is living below your means. This multi-multi-multi millionaire drove the same Toyota Corolla he bought in the 1980s over twenty years later.

Now that you have seen how I do it, it is time to do it yourself.

Intro To Investing

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Warren Buffet, possibly the most savvy investor in history, makes more sense than just about any other investor I have heard speak. He looks for companies that are under priced that are poised to go up in value in the long term. He said that you should be afraid to invest when people are greedy, and you should be greedy when people are afraid.

That said, it is time to start buying. The markets are going crazy. No one knows what will happen in the short term. In the long run, however, stocks always go up. Time to open your investment account.

There are two types of investment accounts everyone should have. If you think you don't have enough money to start investing, stop going to Starbucks. Everyone can invest. Everyone has enough money, you just have to pay yourself instead of paying someone else.

The first investment account you need is a retirement account. This can be in one of several forms. The standard for employees of large companies is a 401(k), or a 403(b) for non-profits. This account is a pre-tax investment, meaning that you do not pay taxes on the money that goes it. Most companies match your investment (mine matches 100% of up to 3% of my pay). I invest the full 3%, which is equal to 6% of my pay. In this type of investment, you probably have a handful (about 10) of investment fund options. I am in a “destination” fund. This is a fund with volatility tied to my retirement year. As I am about 30-45 years from retirement, I have a lot of volatility. As you get closer to retirement, you want less volatility.

Retirement accounts can also be an IRA, or Individual Retirement Account. The traditional IRA is a pre-tax investment. A Roth IRA is an after-tax investment. In 401k, 403b, and traditional IRA investments, you pay taxes on withdrawals. In a Roth IRA, withdrawals (capital gains) are TAX FREE! If you are not going to retire for about 7 years or more, this is a great investment choice.

The other investment account you should have is one that you manage for yourself. I have a 401(k), a Roth 401(k), which is a Roth IRA managed through my 401(k) company, and will soon be opening a personal investment account. I will talk about that process in a future post. Don't miss it, subscribe.

When making investments for your future, you have to make it a priority. Set a goal. Set somewhere to start. I started with only that 3% (pre-tax) which turned into 6% with the company match. Next I added 2% more (to make 8% total) in company stock at a discount. I then started my Roth (2 weeks ago) with another 2%. My goal was to invest 10% of my pay into retirement. I am there. If it is a priority for me and I am in my twenties, it should be a priority for everyone.

My goal after completing my MBA is to raise this number to 15%. Set a goal as a percentage, not as a total amount. A percentage means that with every raise, your retirement savings will grow. Don't think about this as money spent, think about it as paying yourself for your future.

I want to retire at 40. To me retire doesn't mean stop working, it means stop having to work. At 50 I want to be a recreational entrepreneur. To do it, I need money in the bank. To do that, I am saving today. I have a 25 year retirement goal, I will keep you all up to date as I go using the Net Worth widget on the top right. Click on it to see the detail. It is small now, but I am persistent.

If you invest like Warren Buffet today, you can relax like Jimmy Buffet in the future.

The Benefits of Insurance

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As someone who cares about their financial situation, which all Narrow Bridge readers surely are, you probably care about your stuff too. As a stuff owner, it is important to have stuff insurance.

If you are a twenty-something renter like me, you do not own a home or have considerable assets. However, if you add up the value of your TV and electronics, DVD collection, laptop, shoes (for the girls), and other odds and ends, you probably have a lot of value in your house/apartment. How should you protect your stuff? Renters insurance.

Renters insurance is fairly cheap (most plans are about $20 a month). Considering the price of replacement in case of a break in or fire, this is a small price to pay. Make sure to take pictures of everything you own so it can be quickly and easily replaced.

If you have a car, insurance is probably required by law. This insurance will protect your car, other cars, and anyone in those cars in the event of an accident or vandalism. My car was vandalised this week (and inspired this post). The cost of repairs was over $3000. My deductible (the part I have to pay) was $250. Either way it sucked. However, I was protected for all costs over my deductible. This coverage costs more, and will depend on age, gender, where you live, and the car you drive. As a 23 year old male in Colorado with a nice, new car, I pay about $120 per month. This is a small price to pay for the big “what ifs” on the road.

If you own a home, you are generally required by the lending bank to have insurance. So, your homework today is to get renters insurance if you do not already have it.
P.S. That is not my car
Image by Tommy and Georgie.

My Net Worth, What’s The Deal?

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In October 2008, the first month this website existed, I started publically tracking my net worth. I made updates here every month, which eventually included and led to my popular monthly income reports. These began as a monthly series, but in the spirit of a better navigation and reading experience, I merged the early versions into this single article. Now you can browse and watch my net worth develop over time as I went from a near zero net worth in grad school to the $500,000+ net worth I enjoy today.

[Read more…] about My Net Worth, What's The Deal?