EIULs work, but only when given enough time

I’ve written here MANY times about EIULs. They are great. Their fundamental concept is that you get to buy European style options on various stock or bond indexes. This means that if the index goes negative, you don’t lose your money. If they go positive, you lock in a gain FOREVER. And your gains can in turn generate more locked in gains in the future.

But EIULs require time to do their magic. I just added a new worksheet to my net worth tracking spreadsheet. I have been plowing money into my EIUL since early 2012. That’s perhaps 2 1/2 years worth. In my main spreadsheet, I have the annualized growth rate of my entire net worth tracked to the month. I wanted the same thing on the accumulation value of my EIUL. So I got to work.

Well guess what? After 2 1/2 years, the annualized rate is currently at -4.15%. That doesn’t sound good, ehh? Well, there are several factors to consider. For starters, this worksheet lists the amount of money sent in to Minnesota Life. That means, by definition, a certain sliver of that money is taken out every month to fund the insurance tied to my EIUL. That’s a loss. Some more gets routed towards profits for the agent and the company. What’s left is sent to my cash value to accumulate and, in turn, generate credits.

I have certainly been racking up credits. I have scanned things back over the past couple years, and with the boom in the market, the caps are getting hit. But it doesn’t mean there has been enough cash value YET to overcome the fixed costs of maintenance as well as cost of insurance.

To double check things, and make sure I still understood what was going on, I dug up the original estimate sent by my agent. I can see where he estimates amount of money put into the plan every year alongside estimate accumulation value. I checked each year, and noticed that sure enough, it actually doesn’t go positive until Year 8.

Year 8? YIkes?!? Is that bad? Well, don’t forget, this is an estimate that predicts by the time I reach retirement and stop putting money in, I will have worked things up to an annualized growth of about 8%. Given that the Dalbar Report shows people doing less than 4% with mutual funds (which may yet require taxation after the fact), that sounds pretty good.

What is important to notice is that my growth rate has been moving slowly towards the positive. This is partly impacted by the fact that I just don’t have a big cash value YET. But as it grows, my ability to lock in bigger and bigger gains, and be immune from market shock will also kick in. For people that want to see big returns in five years or less, EIULs are not for you. But given 20 years+, this should result in a nice, steady, slowly accumulating and slowly beat-the-heck-out-of-mutual-funds results.

Happy investing!

To build wealth, you sometimes need to fight emotion with emotion

graph_up2It is highly documented in multiple studies that when people see their portfolios take a 30%, 40%, 50% (or higher) hit, they freak out and sell. This has been the emotional reaction of people for decades. It’s the reason the stock market and S&P 500 may average 7-9%, but people average less than 4% in mutual funds.

Essentially, research shows that immediate pain can quickly overcome prolonged success. We want to end the pain NOW. So we sell to prevent further loss. Hence, losses get locked in. A concept I learned about from Tim McAleenan Jr. is to combat this with positive emotions.

Try this on for size. If you buy shares of Coke (KO), follow up by buying a 2-liter, a six pack, and perhaps some other knick knacks of Coke. Take these things and set them up on a visible shelf, perhaps in your office. Then when you get your first dividend check (if you can secure a printed one, if not print out a statement from your broker), frame it and add it to your collection. Then, everyday you will have a visual reminder how your holdings in KO are earning you money every single day for simply waking up and joining life.

When the next crash comes (and it certainly will), you will have a bit of solid, positive emotional energy built up. And you’ll soon discover that your holdings in KO continue to yield dividends despite the drop in market price. The big key is that someday, if you hold steady, you’ll collect enough shares, that the market loss you feel will actually be less than the total value you have accrued.

Crazy things can begin to happen. Crazy GOOD things. When you weather a few drops in the market and see KO holding its own, you begin to see these price dips not as tragedies, but instead, opportunities. When KO takes a significant beating in share price because some newbie investors are freaking out and dropping shares that have been paying increasing dividends for 50+ years, it may be YOUR chance to get more. (Which incidentally requires that you have some amount of cash on hand.)

Now don’t assume this article is all about buying Coke. Instead, it’s about recognition that you WILL feel negative emotional reactions when the stock market plunges in the future. To handle things, we need not only objective financial analyses to properly handle them, but emotional mitigators as well.

Good luck!

Buying heavily discounted positions in BP…for my kids

bpAfter recently getting a hefty tax refund, I decided I had enough cash to buy my kids a starting position in BP, aka British Petroleum. Why?

  • They are paying about a 5.8% dividend.
  • They’re balance sheet of assets and earnings in dollars is about the same as when they were trading at $60+/share.
  • They have already doled out much in payments regarding the Deep Horizon oil spill from 2010.

Essentially, they are still at risk of having to pay out more damages, but the odds are shrinking as time progresses. It might take more years to wrap this up, but that hasn’t stopped them from continuing to produce. When other investors get more emotionally comfortable, the price will in all likelihood rise back to that $60/share range.

I own a small piece of BP in my IRA. The place where I wanted to apply more cash was moving pieces of that refund into my children’s trustee accounts I set up a year ago. Essentially I can buy them a block of BP stock, set it on DRIP to auto-buy more shares as the payouts come, and let it auto-grow over the years.

Does this sound suspicious given that I am not myself buying more BP? I understand your position. If it was so glorious, why don’t I buy some myself? The truth is that I’m working on another investment that simply takes time to become available. So I have to sit on that cash until the time is right. As to buying for my kids what I buy for myself, already done. VNR, BP, and CVX are stocks I own and that I have also bought for my kids. The other thing I’m looking to investing in isn’t an option for them without setting up more complicated structures. So in the meantime, I am happy to buy chunks of stock in companies that have performed well for years.

I believe BP is suffering an emotional roller coaster not tied to the their actual value. When they return to the $60s, then the equity position I have just bought for my kids will rise 50%. Awesome!

Stay tuned!

2013 taxes filed…whew! Say what?!?

TaxesThis past Wednesday, I finished filing my taxes. What?!?! Wasn’t that due back in April?

Well, yes and no. Income taxes in the United States are due April 15th. But you are able to file for a six month extension. As I’ve blogged before, my taxes are too complicated to get done in time. So my accountant has been chugging away, and we finally wrapped things up on the given deadline, October 15th.

And the celebration is that I got a big refund! How much? Well, I don’t publish actual numbers on this site, but try 4% of my taxable income. Now you go and calculate how much that would be for you, and tell if that wouldn’t make you happy.

Filing complex taxes is no small feat. Even though my CPA is well versed in real estate, LLCs, tax deductions I never knew about (like fees for pre-school for my kids), I have to produce all the paperwork for him to scour. This included closing HUD forms for buying and selling houses last year. One was missing. And then I remembered: we couldn’t make it to the closing and my father-in-law had been empowered to sign for us. I contact my agent, who gave me the title company’s number. I left a message and they fired me a copy of the HUD.

I was about to throw in the towel on child pre-school deductions given that I couldn’t find the church’s EIN number. But my CPA had checked some published registry and found them, cross checked against the street address I supplied. Woot!

Moral of the story: know where all your financial paperwork is. And don’t forget to keep email addresses and phone numbers for the people that can find critical bits for you.

So what will I do with this extra cash? Stand by. I’ll let you know.

How to evaluate a cash value life insurance policy

Every day that I turn on the radio, I hear cash value life insurance get denigrated. The problem is, the comments are highly generalized and rife with big assumptions that aren’t always true.

First of all, let’s back up and look at what cash value life insurance is compared to term life insurance. Cash value life insurance is also known as permanent life insurance. Some people also call it “whole life”, because that version has been around for decades. But there are other types that are NOT whole life.

Boiling things down, cash value life insurance is designed such that the face value of the policy can be paid when the policy holder dies. So how DOES it work? Basically, you buy a policy with a given face value. Imagine we picked a policy that offered $100,000, payable upon death to the beneficiary. So how can an insurance company come up with a way to guarantee paying this amount of money at some random time in the future? They collect premium payments form you, and use part of it to buy some immediate term life insurance and the rest is set aside to build up “cash value”. As more and more premiums are collected over the years, the cash value builds up.

The cornerstone of cash value

What is cash value? Essentially, it provides a cornerstone of the face value. Imagine you had built up a $30,000 cash value to back the $100,000 face value. At that point, 30% of the insurance is covered by the cash value, meaning the insurance company only needs to buy an additional $70,000 of term life insurance. At a certain point, they no longer have to collect premiums from you. Instead, interest from the cash value can be used to fund term life insurance making up the difference.

This is what leads to haughty TV and radio show hosts balking at how insurance companies “only pay you the face value” and “keep the cash value for themselves”. Ahem. If you have a $100,000 policy backed by $30,000 of cash value, where do you get the idea that they owe you $130,000?

This is just the scenario I heard the other day on the radio. Most of the time, the dollars aren’t mentioned. Instead, the radio personality seems to imply that you could have racked up $50,000 of cash value, and yet only get paid something smaller, like $25,000. That WOULD be horrendous. What they don’t mention is that the face value is typically HIGHER than the cash value.

Some real numbers

The only real numbers i often hear on various shows is how cheap term life insurance is compared to cash value. Like how dollar for dollar, term life costs 5% of cash value life insurance.

In a rare moment, I heard someone call in with numbers precisely matching what I’ve said so far. This caller had paid $20,000 in premiums over 25 years, and built up a $30,000 cash value, backing a $100,000 face value policy. His primary concern was that if he cashed in this policy in order to ditch it, he would get the first $20,000 tax free. It would be consider return of capital and not cost a cent in taxes. The host tried to say people almost never have tax consequences. But in this case, he would be facing a $10,000 profit. This is where he would need to talk to an accountant. I don’t know if that would be long term capital gains, or something completely different.

The talk show host couldn’t believe his ears. He repeated his usual complaints about how you never GET the cash value. And then I heard the caller reveal the face value of $100,000. When he dies, his wife will ONLY get $100,000 and not the additional $30,000. Instead, the insurance company is keeping that money for itself! Sorry, but that is grossly wrong. At this stage, the insurance policy has $30,000 in cash along with an additional $70,000 of actual insurance. Liquidating everything would result in a combined total of, surprise, $100,000 to pay out. There is not pile of gold left behind that the insurance company dumps into a giant vault and begins to swim in like Scrooge McDuck.

HINT: Insurance companies gear things such that they rack up their maximum profits at the beginning not the end. Term life insurance policies tend to get cancelled within a couple years. Same for many policies. Things change and people stop paying premiums. Insurance companies aren’t dumb. They want to rack up their profits early and move on.

What really stunned me was how the talk show host failed to look at the actual growth of the caller’s insurance investment. The caller has the opportunity to borrow against the cash value, perhaps to fund retirement. In that event, imagine they could borrow the entire $30,000. It’s usually something less to avoid collapsing the whole policy, but let’s assume they can take it all. We should be asking, what was the rate of return on that?

Actual yield of a whole life policy

If the caller invested $20,000 and accumulated $30,000 over 25 years, we can easily calculate the annualized growth rate. Simply take $30,000/$20,000 and take the 25th root. Result? 1.6% annualized growth. THAT is the indicator that this policy was horribly set up. THIS is the reason I would dump the policy and instead take the cash elsewhere, like buying up a big chunk of VNR stock.

With $30,000, the caller could buy roughly 1350 units of VNR. That would yield $283.50 every month, resulting in a hair over $3400 annually. In ten short years, the caller could easily double his money due to VNR’s 7.5% yield. This is much better than the dismal 1.6% yield which isn’t even keeping up with inflation. And this analysis assumes no growth in distributions from VNR.

Or take this $30,000 and buy KO, WMT, GIS, or a dozen other solid companies you have known about your whole life. Or perhaps buy a real estate note. Anything is better than 1.6% in my book.

Thankfully, the EIUL I have setup is designed properly. The face value has been dialed back to the minimum amount allowed by the IRS. This means that the cash value will grow much faster than 1.6%. My agent plugged in a estimate of about 8% based on a 20 year look minus 10%. This paints a very conservative estimate. 8% of growth is certainly possible even though mutual funds are averaging 4% thanks to an EIUL’s ability to guard against market drops.

Happy investing!

First step towards building wealth? Budgeting your income and expenses

habit-saving-moneyI want to put something out there. If you have read this blog site over the past couple of years, you might think I have everything together. Whereas I feel confident in my approach to growing net worth, something I have struggled with for years is how to run a proper budget.

You see, years ago when I entered the work force as a newly minted software developer, I started making decent money. I wasn’t a big partier. My idea of vacation was to visit my parents at Christmas and Thanksgiving. Hence, I didn’t spend big money. It never entered my mind to spend the big bucks to go to JavaOne or some other convention.

Essentially, I made enough money and spent little enough that i didn’t HAVE to run a budget. My checkbook would fill up with money and I would only use what was needed. At one time, I called up my bank and asked if I could automatically move some into a savings account. This was pre-Internet banking, and they said “no problem!”

I could go on about the golden years, but the sum issue is that when I got married a few years ago and we had kids, all of that went out the window. We suddenly discovered as a couple, that there wasn’t “enough money” at the end of the month. I had big savings that kept us from crashing. But I knew that dipping into long term savings was not the path to success.

Budgeting is communicating

And then I learned what is SO HARD about budgeting. The task itself isn’t hard. You track incoming and outgoing money. The hard part is communicating with your spouse. Because that what a budget really is. A tool to communicate.

Many studies have been done, and it reveals that money is one of the biggest (if not the biggest) issues that causes issues in marriages. My wife and I had different backgrounds with money. To bring up the subject caused her stress. For me, I initially was too concerned with making her happy, so I would push off issues about overspending until the worst opportunities.

We would go clothes shopping for the kids, and my mind would be filled with, “Can we afford this? Can we afford that?” Meanwhile, my wife was trying to pick the best things. Then we would go out to eat, and my heart would sink as the thought of all that money we were spending.

We tried several things to get onto a budget. It required experimentation, talking, letting go of assumptions, and lots of separate, small talks. Eventually we forged a path and got going. I felt relief.

Nobody’s perfect

As I hinted at the top of this article, I’ve never been rock solid on budgeting. In the past year, we had actually gotten off budgeting. Several changes happened like a new baby, moving into a new home, and seeing my paycheck change from every 2 weeks, to twice-a-month, and back to every 2 weeks. It was enough to cause the budget worksheet to fall by the wayside.

But last month I knew we had to get back on course, because I had already paid our primary mortgage using emergency cash reserves twice this year. That was a red flag that we were again off budget and not communicating with each other about money.

I steeled myself to dig up the old worksheets, update the values, and hammer out a new one with revisions. After about two weeks of effort, my wife and I had a new one to embrace this month. And I already feel like we are moving back to the right path. I feel like it’s only fair to share with my readers that no one is perfect, including me. If you have tried budgeting in the past, but failed, I implore you to try again.

Ideas on budgeting?

To wrap up this post, I wanted to at least describe the way our budget works. You don’t have to do it this way. Do what works. But if you have no idea, let me at least give you an idea to consider.

I have a spreadsheet where the first column lists the total income I expect to receive. The next few columns are critical items including: mortgage (or rent), utilities, groceries, insurance, and gas money.

After that are less important things like: clothing, dining out, date night, household. The last column is dubbed “Misc” and essentially contains whatever the final balance of money is left after everything else. If you have other things like debt or savings, put them on your budget as well.

Essentially, plot out every nickel of money until it’s all accounted for. Then when you spend money throughout the month, I subtract it from the relevant column. Every little bit of money I charge to the debit card results in a deduction from this worksheet. I can see instantly how much money is left in any category. If we are about to run out, then my wife and I must decide where to reallocate money. And if there is no more money, perhaps in dining, then that’s the end of dining for the month.

No one has to tell the other “you can’t spend that!” Instead, we use the worksheet to handle it. And if we run into funding issues, we work it out together. At least, that is the plan. Reality doesn’t always work according to plans. So we’ll keep on working at it, hopefully better with each month.

And good luck to you as well!

It’s the yield, stupid!

habit-saving-moneyWhen it comes to building retirement wealth, you must keep your eye on the ball. What does that mean? Simply put, your goal is having the biggest after-tax cash flow when you reach retirement. Cash flow now, 25 years before potential retirement, is foolish. If you take a step that results in MORE cash flow today but produces LESS cash flow in retirement, then it was the wrong step.

Something to look at is the yield you currently receive. In essence, at any given time, you have a pile of cash. Your pile of cash should be earning some degree of cash. The rate it earns is the YIELD. If you have $100,000 and it nets you $5000 a year, you have a yield of 5%. We can discuss lots of different assets and their various yields. Real estate, CDs, mutual funds, bonds, stocks, whatever. Bottom line: your cash needs to be put to work. And the higher yield the better.

Duh! That part is obvious. What is more subtle is that you need to always look at all money coming in as cash flows. You may have a daytime job, which is one cash flow. But you may also have real estate properties generating cash. Your stocks may generate dividends and distributions. But at the end of the day, you need to know what your total yield. And then you need to be willing to investigate options that can increase your yield.

At that point, it becomes easy to evaluate whether or not debt will help or hinder your growth of wealth. When real estate can generate 5% growth and you leverage it 4-to-1, you dial things up to 25%. Borrowing money at 4.5% becomes a no brainer. The remaining hurdle is hedging the inherent risk that higher yields produce. One of the biggest ways to immunize yourself from real estate risk includes:

  • Having a big bag of cash sitting at the bank. How much? Think about 100% vacancy for a year.
  • Buying top quality property. This draws top quality tenants. It costs more but reduces the risk of renting to non-payers that must be evicted.
  • Renting in a landlord-friendly state. Hot tip: I don’t own rentals in California, and won’t in the foreseeable future.
  • Become a macroeconomic investor. Invest where the big indicators show a good rent-to-cost ratio (like Texas).

And never, ever, ever pass up opportunities to sell one asset if you find another that shows a consistent, sustainably higher yield. Because the higher the yield, the fast you can put that cash flow towards buying MORE quality assets to generate cash.

Good luck.

Is defeating the beast of debt the best way to reach retirement wealth?

wealthI’m back! I’m been on a hiatus for the past 4-5 months, nose to the grindstone writing Learning Spring Boot. But I turned in my last rewrite about two weeks ago, and after a bit of decompression, am more stoked than ever to write!

I was spurred to comment about cash and cash flow based on what I heard on the radio. I listened as someone talked about how to get out of debt and move forward with reducing costs. The person calling in was stuck with student loan debt. They had already tackled some other things like credit card and auto loan debt.

As I listened, I kept hearing the same things. Get rid of debt, get rid of debt, and more git rid of debt. On the face of it, it make sense. But I kept thinking, what happens when they get past all this debt? What then?

Consumer debt is a menace. Many people take on too much. They don’t budget well. Translation: we all make more than enough to get by. Because we don’t manage our money well, we end up spending too much on things we don’t need. Get it under control, and you can go far. But at that stage, people start stuffing their spare change into 401K plans and IRAs. They don’t realize how much they are shooting themselves in the foot.

401k funds have shown a 20-year history of performing at or below 4% annualized growth. How bad is that? Inflation is slated to be around 3%. This means that if you get the average (and don’t tell yourself you’ll beat the average), you are barely ahead of inflation. How good is that?

When you consult a financial advisor, they will talk to you about how this fund and that fund are performing. That may be true, but there are some innate biases built in that aren’t obvious. First of all, the funds that exist today aren’t the same funds that existed ten years ago. When funds perform poorly and people dump their holdings, brokerages houses end up closing things out. Those that are left, get transferred into another. And the next year, if you were to ask for the brokerage house’s average performance, the closed out fund isn’t part of that picture.

Another factor not mentioned is that funds don’t invest; people do! People buy funds. People buy stocks. People buy real estate. Hence, the question you should ask an investment advisor is how has his clients performed? What is his client’s average annualized growth rate? What is the average/minimum/maximum life he has held clients? A good investment advisor that is making his people wealthy should have long standing clients. Their annualized growth rates should be high. Measuring the performance via a prospectus is the wrong focus and won’t reflect how clients are doing. In other words, it won’t show how YOU will do.

So if you realize that 401K funds aren’t the answer, the next question is: what DOES work? What are you willing to do to get there? I invest in real estate, stocks, and EIULs. And being cash flow positive with no consumer debt, I am willing to take on debt. The caller on this radio show sounded unready for anything like that. I fear they will clear out all this debt and then be unready to entertain borrowing money to invest in real estate. Instead, they are going to go with the host’s plan of buying up mutual funds. Things will really sizzle, because they won’t be hampered by car payments, student loan payments, and credit card payments. And they will make it to retirement, perhaps saving up $1MM.

And that is when they will discover that it’s not enough. Their financial advisor will tell him or her that they can start withdrawing NO MORE THAN 4%, i.e. $40,000. Then Uncle Sam will ask that they submit $4000 in taxes. (I’m being gracious and assuming that landing in a lower tax bracket results in an effective tax rate of 10%). At the end of the day, this person that tackled small bits of debt thirty years earlier, is now raking in $36,000/year. That maps to $3000/month.

Can you comprehend living on that tiny amount of money? Do you see cruise trips or spending a month in France on that kind of cash? Was slaughtering the beast of debt and not considering future loans to buy cash flowing real estate worth it? Not for me. I plan to reach retirement with MUCH more than $1MM, because it takes much more than that.

Stay tuned for more discussions about building retirement wealth.

So you want to build wealth? Look for multiplicative ways, not additive ones

“Another day, another dollar” — common expression

This expression is commonly known by many. It represents a common, core feeling we get as members of the vast work force. We go to work, put in the hours, get paid our wages, and go home for the day. This is not the way to build retirement wealth.

When it comes to building wealth, getting paid on a day-to-day basis is additive. To accumulate enough wealth to last for years, we have to put away huge amounts of money. Typically 30% of our take home pay is a minimum amount.

Why do I say that? Because the tools we are being sold on for investments don’t work unless we compensate by over-saving. A good example is the classic skip-that-daily-latte and instead save the money, and it 20-30 years, you will be a millionaire. I had heard that a few times, and figured it sounded great. Until I read an objective analysis of that. Basically take $5/day and multiply it by 365 days. What do you get? $1825/year. Doesn’t sound too bad. Today. But let’s take this concept and back up to 40 years ago. What was the median income for people back then? According to one source, median household income in 1974 was $9780/year. That would imply that saving $5/day, the price of a cup of coffee, was like putting away over 18% of gross salary. If you can assume 28% in withheld taxes, the percentage saved against take home pay would be 25.7%.

Wow! If we are to read that correctly, it suggests that saving $5/day today may result in $1MM, but in 40 years (if you started this when you were 25), $1MM probably won’t be worth much at all. Instead, we should read that correctly as needing to save AT LEAST 26% immediately.

Many people, if they looked at that, would just throw their hands up in the air and give up. But if you’re here, you surely have guessed that I’m going to say something different.

We need to look for options that have a multiplicative effect. What is that? It’s when you make some making by direct action, but the more actions you take, the more they interact with other actions already in progress.

One thing that I realized as I wrapped up the last chapter of my 3rd book, is that doing something as small as writing books on the side can introduce multiplicative money making. Today I finally got some time to watch a TV series with Neil deGrasse Tyson. I’m quite fascinated by astrophysics and his series seems entertaining. In the opening credits, it notes that Dr. Tyson has written ten books. Something I can realize is that the more books you write, the more books you will sell. Not additively, but multiplicatively. Simply put, people that enjoy one of your books are VERY likely to go and buy your others. My first book has yet to earn enough to pay off the advance I received. The second accomplished that about two years ago. My dream is that my 3rd will accomplish that even sooner, possibly through more social media, more people that read my previous works, and that some will even go back and buy my previous writings.

It’s only natural. I read the first Jack Reacher book, got hooked, and have now read ten so far. I read “Schrödinger’s Kittens and the Search For Reality”, and have since ordered the predecessor. When you go out and invest yourself into more and more and more opportunities that can yield more and more wealth, the opportunities grow.

So I highly suggest that you take some time to sit down and think. Simply think. Look at what you are doing today. What you have done for the past week. And think about what else you could be doing that can generate secondary effects. What if you started a blog and wrote on a daily basis? It could be small stuff. But it might grow your public image. It might open doors you didn’t expect. Open your mind to looking for new opportunities such an endeavor could raise.

These are all important the rather narrow vision the corporate 401K plans have. The general idea of a 401K is to sock away money in a fund that doesn’t grow very fast. And when you hit retirement, you are required to cannibalize it. Why do I suggest this? Because the federal government has a schedule after which you are obligated to start taking withdrawals. If you’re retired and doing just fine, it doesn’t matter. The government set things up such that they can collect taxes on your withdrawals and they will NOT be blocked from you doing just that.

In case you didn’t know this, the rich NEVER cannibalize their assets. There is this mantra out there that rich people adhere to: NEVER TOUCH THE PRINCIPAL.

In essence you are on a mission to accumulate wealth producing assets that themselves generate wealth you can live off of. You can’t wait until you are retired to begin writing books, building a blogger reputation, or something else. Instead, that is what must embrace while you still can earn enough of a daily paycheck to keep afloat. This is your opportunity to start buying real estate, dividend yielding stocks, EIULs, and discounted notes. Simply putting away 50% of your take home pay and planning to live like a pauper doesn’t sell very well. Good luck!

Would you refi your house to invest? I would…AM!

house_cashListening to a popular radio show this afternoon, I heard caller ask about refinancing from a twenty year mortgage into a thirty year one. The host asked, “would you borrow against a paid off home to infest?”

I would.

The host went on to point out how you need to pay off your home as fast as possible.

Sorry, but mortgages are one of the best wealth producing vehicles out there. As Dr. Dave says, “we should wake up each day and figure out how to get more mortgages.”

If you’re new to this blog then these words must sound crazy. They probably go against every piece of financial advice you’ve ever heard.

But mortgages are the cheapest form of money you can buy. The trick is to use the money to buy cash flowing assets from which you can pay off the mortgage and then keep the cash flowing asset.

The concept of investing cash from your home and is known as equity harvesting. I used a Heloc on my house to invest in VNR. The results have been great.