Showing posts with label Cash Flow Plan. Show all posts
Showing posts with label Cash Flow Plan. Show all posts

Friday, August 26, 2011

HOW MUCH TO DEDICATE TO INCOME

An example of a cheque.Image via Wikipedia
I think this is one the more simple decisions to make.  You need to know how much you spend every month and how much monthly income, if any.
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Friday, June 17, 2011

Secure Retirement Income - multiple income streams

Multiple income streams are very important in retirement.  Think of multiple income streams as income diversification.    Just as investment diversification among industries is important to protect against capital loss should one industry have trouble, having multiple income streams helps to protect against loss of income.
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Wednesday, June 8, 2011

PAY OFF YOUR HOUSE - ASAP

          It has been said the three most important inventions were the lever, the wheel and fire.  In personal finance, use of the lever provides significant advantage.
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Friday, June 3, 2011

Dow down 700 points in 5 weeks; should the income investor care?


                Income investors care about the Dow Jones Industrial Average because many of the quality, dividend producing companies we own are in this average. 
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Wednesday, May 4, 2011

Sell in May – why?


                Traders buy and sell stocks, bonds, and call options based on trends, charts, historical events and expected events.  Traders also buy and sell on expected unknowns.  They time the market and often times hold a position for less than a minuet.  We do not call these folks buy and hold traders.
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Wednesday, April 27, 2011

INFLATION SANDWICH

                We income investors are getting the worst deal possible as far as inflation goes.  We are stuck in an inflation sandwich.  We suffer increased expenses without a similar opportunity for increased income. We are sandwiched between reduced income and increased expenses just at the time in our lives when you take care of kids and parents.   Inflation is the cruelest of taxes.
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Wednesday, April 13, 2011

What to do with your tax refund?


Income investors do not like to have money that is not earning money.  If we receive a tax refund, it means the money we deposited with the government is a tax free loan.  We get no income on that money; we received no advantage when our money earned nothing.  Remember either our money works or we work.


However, income investors are no different than other investors in that
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Friday, April 1, 2011

Check your portfolio quarterly!

How often should you check your portfolio?
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Tuesday, March 1, 2011

Net Income; match the investment with the right account

Net income requires you to match the investment with the right account.     Net income is very important to income investors. If you make 12 percent and the government takes 9% in taxes you are only receiving 3%.
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Wednesday, February 23, 2011

SEVEN RULES OF PERSONAL FINANCE

Over 35 years of investing and managing, one cannot help but find trends and rules that work every time.  These seven little rules are the foundation of conservative, safe, personal financial management.
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Friday, February 18, 2011

Dividend Machines, can you live on three percent?

If you have one million dollars to invest, you invest all of it for income, and that income is three percent, you will have $30,000 to live on. $30,000 income is probably not going to be enough to live on for most income investors.

Dividend machines alone will not make your retirement. As an income investor, you need a cash flow strategy that includes more than just dividend machines. Some of your investments will be in instruments that provide less than 3 percent cash flow but will have more income possibilities. For instance, covered call income can produce ten percent income streams or sometimes even more.

Bunge, symbol BG is a good example of income potential. In a previous post, I talked about buying BG and the price at the time was about $66.75. Today BG is about $74 a share. BG pays a 1.75 percent dividend yield therefore BG qualifies as an income investment. The real income comes from selling covered calls. Today you could sell a covered call that expires in April. The strike price is $80 and the call income is $1.20 per share. When you combine the income from the call, the dividend, and the gain you will receive if the call buyer takes your stock at $80, your return is nearly 22 percent.

Income investors need to figure out how much income they need from the portion of their investment portfolio dedicated to investment income. Once that chore is accomplished a cash flow strategy is developed that will include companies that pay income to its investors in the form of dividends and have a chance to get covered call income. Work backwards from this calculation. What percent of your investments can be in safe dividend machines at 3 percent? What percent do you need from the rest to create the cash flow you need?

Real estate is another idea. While real estate is beyond the scope of this blog, you can learn a lesson from an experienced income investor. Invest in real estate that pays you more in income than it costs to operate the investment. So many investors made the mistake of getting into too much debt buying property that did not give a positive cash flow. Now they are underwater and have to decide to walk away or put more money into the property until prices recover enough to either sell the property or find tenants that will pay enough that the cash flow is positive.

It all comes back to one of my most important rules. Invest in something that creates investment income. Dividend machines are one piece of the picture but not the only piece. However, investing for income means just that. Every investment should produce cash flow.

Remember this very important rule.

Very Truly Yours,

TheMoneyMadam
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Wednesday, February 9, 2011

Earnings per share, a simple way to measure if a company makes money.

Learn how to measure if a company makes money. Every income investor who follows my cash flow strategy knows that one of your first steps is to determine if the entity to whom you are lending money or in which you want to make an investment makes money.
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Friday, February 4, 2011

Definition of an income investor.

Who is an income investor? Are you an income investor? Should you become an income investor?

An income investor is one who uses some or all of their investments to create income in the form of dividends, interest, and capital gains.
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Wednesday, January 12, 2011

Income Investors need personal income to replace working income

Income Investors need personal income to replace working income and that requires a strategy

Personal Income Investing Rules

TheMadam knows !
Invest in something that makes money.
Profit, another word for making money, is measurable and information on the profit generated by whatever you buy should be available or do not buy that instrument.
Income investments make more money than they pay out. If a company pays a 10% dividend but pays out more that it makes, don’t buy it. That rule applies if an investment pays our 3% but does not make money.
Pay off your house as fast as you can.

You can make a case for using leverage to create wealth and indeed it works, but you will sleep a lot better when your principal residence is owned free and clear.

Diversify your income portfolio by thinking of only two groups; (1) income instruments and (2) growth instruments.

Some think that diversification means stocks for growth and bonds for income but in many cases you may have some stocks that are core income producers and some bonds that you trade; diversify your income instruments. How much of your savings do you need for income? The rest you can use for growth.

High wealth people must invest in tax efficient instruments.

The most common tax efficient instruments are municipal bonds. Real estate and Master limited partnerships are also tax efficient instruments.

Never be afraid to take profit.

Taking profit really works with stocks. Selling covered calls at a 10% profit allows you to move into the next up and coming sector therefore you end up rotating sectors. You can find another value stock that makes money; pays a dividend and is available at a value.
You can also take profit in bonds when you buy at a discount and sell above the par or call price.

Never buy a bond at a premium.

Keep up with current affairs and you can find a company with a strong balance sheet that has trouble because of factors beyond their control. You may find their bonds a good buy at a discount. Eventually, if it is a good company, the trouble will go away and you can at least get the gain from keeping the bond until it pays at par. Sometimes you can sell at a premium.
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Monday, January 3, 2011

Income Investing Plan Step Two

All successful people use a plan and collecting information is an important part of that procedure.  Step two is heavy on collecting information:

Expenses: Categorize your expenses into two categories:

  • Mandatory Expenses
    Mandatory expenses include housing costs such as rent (some well off retired people do rent,) mortgage, homeowners' fees, insurance,taxes, utilities. Other mandatory expenses include car payments and insurance. Some would consider health insurance a mandatory expense; others would not. Another family may own income property that has mandatory expenses and if so, those expenses also need to be included.
  • Discretionary Expenses
    Now we get to the fun of life. How much money do you want to spend to create your dream? More than basic cable would be an example. Business class instead of coach? How about gifts? Annual freshening of your decor. New machinery. I can go on forever. Look back, add up the costs of your pleasures and budget for your future.


Seriously speaking and trying to keep this simple, really think about those expenses that could be cut if you had to and you could still enjoy at least one home, have transportation, eat, and have some form of entertainment. Be honest and be careful as you gather this data.

Income:

List each source of income but divide them into two categories:
  • Income Sources not under your control, examples are:
    • Social Security
    • An already contracted annuity,
    • Uncle Henry's trust
    • A pension
  • Income Sources under your control including:
    • Stock dividends. Just add them all up even if you reinvest.
    • Bond Interest.
    • Income from selling covered calls.
    • Rent. Your income is the amount you have left after the many expenses that go along with being a landlord.

Later on you will find that you need more detail about your income sources particularly net income or tax adjusted income, but at this point keep it simple and calculate your total income as the sum of (1) income sources not under your control and (2) income sources you can control.

Portfolio Value:

Investments that you will depend on to create income are the assets you list in total portfolio value. You can fool your self and list your house, but your house is just an expense even if it is paid off.

The value of your income investments is critical. If these assets are worth $100 you have little chance of creating retirement income. $100,000 dollars can create $500 per month if done properly. You need to calculate the total value of those assets that you can control. We are not asking for net worth; we need to know total investment portfolio value.

Risk Tolerance:

Knowing your risk level is critical. I recommend using the Rutgers University quiz available on at their website,  Njaes.rutgers.edu/money/riskquiz. When you complete step two of your plan, you should be able to have all your data on one page.

Complete step two by writing down your mandatory and discretionary expenses, the value of your investments, your current income, and finally your risk tolerance. Remember to date it.

Very Truly Yours,
TheMoneyMadam
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Tuesday, December 21, 2010

Income Investing Plan Step One

The New Year is upon us and now is the time to set your 2011 goals.

STEP ONE
Define your income investing goal.
 
Your best investment intentions cannot make up for a precise definition of your investment goal. Without a clear idea of where you are going, you will be throwing darts at investment ideas rather than attaining your investment goals.

Select one of these goals and use it as a guide to create your own precise goal. It matters not whether you self direct your investments or use a professional, you must define your income goal.

I want my investments to generate cash flow:
    • equal to my expenses
    • greater than my total expenses
    • It's okay if it is less than my total expenses
Now that you have determined your cash flow goal, think about what you want to happen to your principle.  Select the scenario that best describes how you want to disburse your savings when you mature (in philanthropy words that means when you die.)

When I mature I want my original principal to:
    • Equal the original amount
    • Have a greater value than when I retired
    • It's okay if it decreases

This is not an estate planning website. I am here to help you invest the portion of your savings you have set aside to create the income you need for a wonderful retirement.

Complete Step one of your retirement income plan by writing down your goal and dating your work.

Very Truly Yours,
TheMoneyMadam
 
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Thursday, December 9, 2010

Money at Work vs. Minute Work

During my college days, a student friend was selling insurance to make additional income. Although I never bought insurance from him he taught me the concept of minute work versus money at work. Simply stated, when you save and invest your hard earned money, the money itself can create income. For most of us honest working folks, the ordinary investor, hourly work has limits, but money at work has no limits.

Remember that you would never work for free and you should never let your money work for free. In other words, your money at work has to create income. This income investing rule seems simple but so few people employ it when they invest.

It is very tempting to invest your money into something that is supposed to go up 1000% because some guru says it is guaranteed. It is so enticing. We are all prone to want a quick gain. Who needs 4% every year when you can get 1000% gain right now?

You know the answer already. You want to be a savvy investor. You do not want to waste your savings. But, I ask you, do you have your money invested to create income?

Deciding to put your money into an investment that creates 4% annual income may not be as exciting as hoping for a huge gain, but this is the very first step to creating money at work. This blog will teach you how a series of investments that create income will add up to create retirement income based not on hours worked but based on money at work.

Very Truly Yours,

TheMoneyMadam

Don't forget on Monday I will profile another dividend machine idea!




 
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