Category Archives: Economics

Multiple Sources of Income

multiple-income-streams

I started work on July 15, 2016.  My students first day was August 1, 2016.  The beginning of the school year, always makes me yearn for the days when school started in mid to late August.  Now, I will say that I love my job and the influence that I possess. However I hate the day to day tasks of being a teacher.  Honestly, I hate the day to day of any type of job.  My happiest moments are when I have to drop off the keys to my AIRBNB rental.  For a grand total of 1 hour of work, I usually make 2-3 days of my salary.

There’s a meme floating around the internet, it talks about the sources of income for millionaires.  Most people only receive income from their job, for a total of one source  while millionaires average seven sources of income. I want to become a millionaire sooner rather than later, thus  I have already accumulated five sources of income.

Tre’s Sources of Income

4th grade Math Teacher

  • A large portion of my monthly income is the result of me trading my time for money.  Last time, I checked this accounted for nearly %75 of the money I make each month.

AIRBNB Rental unit

  • The remaining %25 percent of my income come from this business venture.  My hope is to grow this enterprise so that it can replace my current job.  This is an example of trading money for more money.

Peer to Peer Lending

  • I don’t really calculate the returns I receive from this into my monthly income statement because all of the returns are usually reinvested into more notes. I started this source in January with a $2,500 balance.  Since then I’ve made about $30 dollars each month.   Another example of trading money for more money

Stock dividends

  • I don’t really calculate the returns I receive from this into my monthly income statement because all of the returns are usually reinvested into more stocks. While my portfolio focuses on growth stocks, I have a few yield stocks as well. Each quarter I receive payments from a few companies that I hold stock in.  These payments are called dividends.  I recieve about $20-50 each quarter

Trading

  • I first started trading a few years ago, when I was without a job and deciding if teaching was still apart of my future (still is…maybe).  I learned the ups and downs of trading is not for the faint of heart.  There were day when I would win %80 of my trades to only a crushing losing streak on no wins for a few days. With that being said this was probably the most fun I had learning something.  Learning to be a winning trader opens your eyes to all the possibilities that life affords, for a stretch I was making around 150-200 a day.

 

The chances of my getting fired, losing my rental unit, all of my notes defaulting, my stocks going to $0 and being on the wrong end of all my trades in one single day or week are astronomical to say the least, but the chances of losing one of them? It’s possible.

Multiple streams of income are the key to financial freedom.  If you only have one source start looking in you budget for ways to create another source, all things being equal it’s always best to trade money and not your time.

 

 

What If You Lost Your Job Today?

Disclaimer:  The information presented in this post is for educational purposes only.  This is not a endorsement for either of the firms mentioned below.

A couple months ago, I read an article on CNBC. It stated, “most Americans cannot  afford an emergency expense of $400 without having to sell or borrow from someone.”  I learned along time ago not to be one of those people.  The article also said roughly a third of Americans have 3-6 months salary saved in an emergency fund.  Now while, I am not yet one of those people, I am 2-4 months away from becoming one.

I cannot overstate the importance of having an emergency fund in place.  Should you ever lose your job, it will provide you with the peace of mind knowing that you have time to locate new employment or pursue new ventures.  It is recommended that you have a least 3-6 months salary, but you can start with a goal of $1,000.  Personally, I think you should save about 10% of your monthly pay into this account.  If you have direct deposit, consider sending 10% percent directly to this account before you paycheck is deposited.  The belief is that since you don’t see the money in your main account you don’t notice it’s “gone”.  I went to the extreme of not having checks or debit cards for my emergency fund.  It takes three days to transfer it, so I have to really need the money to go through the hassle.

My emergency fund began as an Ally online bank account in 2012.  I chose Ally because the %1.00 return of their savings account is the highest in the country.  Recently, I changed from Ally to Betterment. Betterment is a robo-advisor.  For a very low fee (much lower than any human advisor),  it will purchase a portfolio of Exchange-Traded Funds for me based on my style of investing.  The logic behind this switch was that inflation is about 3% and that’s greater than the 1% Ally will yield.

 

Screen Shot 2016-07-25 at 1.07.27 AM

Disclaimer: The recommend ratio of stocks to bonds for the Safety Net account is 40:60.  My ratio is set to 70:30 for a number of personal factors such as age, multiple sources of income, currently held stocks and notes.  I do not recommend this for anyone else  

The image above is snapshot of my Betterment account.  My goal of $10,000, it’s about 78% complete.  I am putting $750 dollars into it each month and have allocated my funds aggressively.  The graph shows the range of my investment growth if I were to follow this trend for the next 2 years.

Screen Shot 2016-07-25 at 1.23.00 AM

The time-weighted turn shows how much my investments have earned, regardless of when the money was invested.  I have  gained 4.8% since the account was opened in May.  

If I lost my job today, I would probably go to Colombia for two months or maybe to visit my friend Taj in Ibiza. Either way, I could walk home knowing I didn’t have to sell my Air Jordans, although that’s the first thing I would do!

 

The Ultimate Emergency Fund

Building wealth begins with a strong foundation.  Today, you will learn the importance of having life insurance or as I like to call it the ultimate emergency fund.  Life insurance is the foundation of most people’s portfolio.  Interestingly enough, due to the over-representation of African-American insurance agents most of us know someone who sells life insurance.

Now, let me begin be saying that life insurance is not an investment, anyone that tells you otherwise is likely trying to sell you something that you don’t need.  Life insurance is protection.  It protects your family from financial hardship should you encounter an unexpected demise and can be used to provide a tax-free legacy to your heirs.

Some people do not need life insurance.  If you don’t have anyone that would be affected by your untimely demise then you are one of those people.  However, if you are like most of us, there is someone who would be truly affected.  Also ,if you have enough assets to cover all the expenses incurred upon your death i.e. you have $100,000 in assets then you don’t need a $100,000 life insurance policy, but  those assets will be subject to an “inheritance tax”. Significantly reducing the amount transferred to your heirs.

The two types of life insurance policies you will likely hear about term life and whole life”\.  Personally, I believe in the “Buy term, invest the rest” mantra.  The reason for that is because the premiums on a whole life policy are about 10x that of a term life policy, and by purchasing whole life you are giving the company your money to invest for you, while keeping a smaller slice of the pie.  Whole life policies usually give 4-5% non-guareented returns , where as the S & P 500 has returned an average of 7% since 1928.

The difference between whole life and term life is that whole life premiums are locked in for the length of your life.  . Whole life policies allow you to build “cash value” in the policy, but as I stated before I would rather make my own investments.  Also, if you are not going to die within the next twenty years, it is actually a poor “investment” as you may outlive its value.

Term life insures you for a period of 20-30 years.  It does not build “cash value”, however it provides you with a peace of mind.  Your loved ones will be financially taken care of with a tax free inheritance should you die. If you would like to know how much insurance you need simply multiply your current salary by the number of years until you reach retirement or the length of time until your child reaches adulthood

Ex.

40,000 per year x 30 years to retirement = 1,200,000

40,000 per year x 10 (years to age 21) = 400, 000

Nonetheless, you don’t really need that much insurance. My own personal policy is $100,000, but if I did have a child I would likely use the second formula.

li-life-insurance-needs

The chart above shows you the times when you will likely need term or whole life.  Notice how whole life is needed in the beginning of your life before college/work and about 10 years prior to retirement. This highlights another interesting use of life insurance.  Often, people get whole life policies on their children, its much cheaper, and allow the policies to build up cash value.  Once the child becomes of age the policy’s ownership can then be transferred to the child along with all the “cash value” tax-free.  It’s a pretty nice gift to a kid entering the next stage of life.

Life insurance has a place in most people’s portfolios. Before venturing further down this road to financial freedom and literacy, I suggest you speak with an insurance agent.  If you need a trustworthy one, I will be happy to suggest mine.

 

Financial efficiency…

Today,  I transferred the majority of my cash assets and direct deposits into two new bank accounts.  The significance being the I am helping to grow two minority-owned enterprises. I am now a proud customer of Liberty Bank & Trust and OneUnited Bank.

Last time, I introduced you all to my budgeting system.  Now that you see the importance of having a budget and how it helps you to build wealth, I am going to show you how to automate your finances.  I’m sure that I am not the only person that hates overdraft fees, so I’m going to show you how to eliminate them.

First there are two new terms we need to learn.

  1. Fixed Spending:  These are bills that have a known due date and payment amount.  Examples include rent, mortgage, utilities, student loans, cell phone, internet, cable
  2. Variable Spending:  This type of spending includes items of varying amounts.  Examples include, groceries, entertainment, investments, haircuts.

Now you are ready to automate your monthly expenses.

The two account system (1)

 

The chart above shows you how to divide your active and passive income streams  into a bank account for fixed spending and another for variable spending.  The first step here is to calculate your fixed expenses.  Next, simply allocate the necessary amount to that account from your income.  I understand utilities can vary so I suggest finding the average cost per month and adding a %10 buffer.  The remaining funds should go to you variable spending account to purchase basically everything else.  The investment bag is green because it is an asset, remember to always pay yourself first.

“$ave Dat Money”

While preparing to write this post, I began listening to the song “$ave Dat Money” by XXL freshman Lil Dicky.  Now, I don’t think Lil DIcky is a great rapper but this post is not about that. I think the song is funny in that he is basically giving  financial advice  to rappers about their extravagant spending habits. He touches on things like frugal spending, 401ks, and the business friendly laws of Delaware all with a decent flow over a hip-hop beat.  The song became a hit  and my students loved it.  I ask that you all teach your children financial literacy at home because they will not learn it in the schools.

Saving money and investing starts with a budget.  It is imperative you create one and stick to it.  I use the Mint.com website and app for my budget needs.  I am sure there are more options, however I do not use them so I cannot offer my opinion on their services.  Mint is simple enough for my budgeting needs.

Before showing you my budget, I want to explain a few things.  First,  my budget will be presented in terms of percentages and not the actual numbers.  My reasoning for this is to show you that no matter how much money you make you can create a budget that is similar to mine but tailored to your individual needs. Second, this is the budget of someone whose financial responsibilities only includes himself.  Finally, this budget is the result of 3 years of learning and taking actionable steps, thus easily achievable for you.

Income

  1. Paycheck                            %76.20
  2. AIRBNB Revenue                      %23.80

Total Income Percentage:                 %100

Spending

  1. Mobile Phone                         %1.43
  2. AIRBNB Business                      %16.67
  3. Groceries                            %4.76
  4. Rent, Utilities                     %20.83
  5. Haircut                              %2.38
  6. Loans                                %7.14
  7. Everything else                      %4.76
  8. Cash Buffer                          %7.02

Total Spending Percentage:             %64.99

Goals

  1. Emergency Fund                      %35.01
  2. Stock Purchase                      %0

Total Goals Percentage:                    %35.01

Total Spending + Total Goals:         %100

Analysis:

Remember, in my last post how i talked about knowing the difference between assets, liabilities, and expenses?  If you did not read it here is the link.

  • Assets:  I have three assets listed.  They are my AIRBNB business, emergency fund, and stock purchases.  Currently, I am not funding my brokerage account because I am trying to make an all out effort to complete my emergency fund goal by October which, if successful will place me one year ahead of schedule.  This results in over a third of my monthly income going toward that goal.  The fund is %64 complete.  Now, the AIRBNB business requires that I commit %16.67 of my income for purchase of the asset, but it accounts for nearly a quarter of my monthly income.  Hence I am able to commit %35 percent of my income to the emergency fund.   By the way (PLUG!!!), you should considering staying at my place if you are going to visit New Orleans.86681f4a-5e4d-4c8d-bdf7-ce917f8eb106

 

  • Liabilities:  The only real liabilities that I have are my student loans at %7.14 of my income.  After filling my emergency fund I will become more aggressive in paying them off.  I don’t own a car because I live about a mile from my job, so I walk to work.  Actually even If i didn’t live as close I still would not own a car at the moment, too many expenses both expected and unexpected.  I have grown to appreciate public transportation, less pollution.
  • Expenses: My expenses include my cell phone,rent, utilities, groceries, haircut, and everything else.  The section titled “everything else” includes things I don’t normally plan for such as eating out, cleaning supplies, hobbies, furnishings, going out etc.  In total my expenses account for  about one third of my total income.  My cash buffer is there in case I go over  the amount allotted to “everything else”, or if I want to pay more on the student loans or START AN INVESTMENT CLUB WITH 25 LIKE-MINDED INDIVIDUALS.

 

Before signing off, I want you all to take note of a few things.  First, I save nearly a third of the amount of money I make each month into a liquid emergency fund.  I expense out nearly a third of the money I make and  the remaining third goes toward purchasing an asset, paying down a liability, and providing a monthly cash buffer.  Second, because of my preparation I am able to save %35 into an emergency fund, you make only be able to save %10 of your income and that is ok. Finally, “Save Dat Money” is actually a pretty good song that shows you how rich people think.

 

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Pay yourself first!!!

I started investing in 2013.  The significance of this year was that I completed my first year as a teacher and I  began a Masters program that would pay me a stipend of $1,000 per month.   As a young man, living rent free in my mother’s rental unit, I soon found myself with a nice nest egg.   My understanding of inflation taught me that as long as my cash sat in a savings account gaining 0% interest, I would lose about 3 percent of the spending power each year.  Basically, if I put $1000 in the account, the next year the spending power would decrease to about $970.   This course of events led me on my current journey toward financial freedom and wealth.  I hope this inspires you to do the same.

The first book I read on financial literacy was Rich Dad, Poor Dad by Robert Kiyosaki. I highly recommend reading this book. For many, this will be the foundation of your financial education, as it is surely mine, and through it you shall find that creating the type of wealth and prosperity that you seek is actually very attainable.  In the book, the author shows the income statements of three types of people: the poor, the middle class, and the rich.  Today, I am going to show you the same.

The Poor Person:

poor-people-cash-flow

The income statement above shows you the cash-flow pattern of a poor person, or my former income statement.  As a young man collecting his first “career paycheck” and having no rent, I had money to burn, and that’s what I did.  To understand an income statement, be it a personal one or that of a business you want to invest in, you must first understand what an asset, liability, and expense are.

  • An asset is something that you own of value.  It may be a stock, bond, note, rental unit, or business.  Assets will produce income in the form of dividends, stock growth, rent, revenue etc.
  • A liability is a debt that has been taken on.  Typically these are car loans, student loans, residential mortgages, and credit card debt.
  • Finally an expense, is something you spend money on.  Examples include rent, food, taxes, credit card payments, student loan payments, car payments, pretty much everything else.

Learn to distinguish the difference between these words, you will hear and use them a lot from this day forward.

Now we can analyze this income statement.  From it we see that this person has money come in via a job and goes straight out of the expense column.  They have no assets so the only way for them to earn money is to sell their life by the hour.  A person with this type of income statement will never create wealth, thus  exiting the “rat race” will be nearly impossible.  This is also why many lottery winners go broke after 5 years.

The Middle Class:

cash_flow_pattern_middle-class_person_kiyosaki-robert-poeticmind-co_-uk_

Four months into my new job, my student loan payments began and I purchased a new car.   I effectively became  middle class, and the diagram above is how my income statement looked.Notice my move from poor to middle class did not come from an increase in income but in liabilities.I think this shows that you can make a lot of money and still be poor if you don’t understand the financials .  In the book Robert Kiyosaki, drives home the importance of paying yourself first.  What this means is that you should purchase an asset before paying your liabilites and expenses.  The reason for this is because assets generate income and they will change your cash flow pattern from the diagram above too the one below.

The Rich:

pay-others-first

Currently this is my income statement, it is similar to that of the “rich”.  Again this is just a mentality switch.  By investing in an assets, you are able to trade your money and not your time  to produce income that will cover your expenses.  In truth, being rich is just having your assets generate enough income each month to cover your monthly expenses. Once that is accomplished you can effectively retire and explore your dreams.  Once I understood what an asset was I began trying to purchase as many as I could.

The key takeaway I would like to leave my readers with is that you must pay yourself first. We all have heard the phrase it takes money to make money, now you know how to apply it.

Mortal Man

I wanted my first post on this blog to describe the scope of things I sought to teach, this included social justice, financial literacy, and culture.  Inherently, I believe these components can be harnessed to create a prosperous life and future for black people in this world.   Yesterday, while discussing the current state of events in America, a friend asked the group, “Where is the modern-day Malcolm, Martin and Huey ?”  I thought to myself that it doesn’t matter where they are for no one is coming to save us.

I think these great men have left us with the tools to build the world that we want for ourselves, though each sought to reach the same goal they all took different means to achieve a common end.  The answer to our struggles lie in the convergence of their paths into one road, the yellow brick kind if that’s what you like.  Martin understood that we needed the political machine to change the laws.  Malcolm knew that the  power lie in the dollar and owning your community: the homes, the stores, the restaurants.   Finally, Huey.  Huey wanted to rally the lumpenproletariat, the class of society not interested in revolutionary advancement, to protect and serve the people.

Financial literacy  will transform us from consumers to investors. As a people we must organize the money in our communities.  That means to buy, support and advertise black owned businesses, to pool our funds in black owned banks, to fund the entrepreneurial dreams of black men and women across this nation. We must become businessman, not workers.  When we create products, we create jobs in our communities.  We can then build the communities as we see fit.    Money is power.

Chairman Mao Zedong said “Political power flows through the barrel of a gun”, I agree that is one way, but it also goes with the cash flow.  With a strong economic base, we may control our destiny in the political realm. The difference between the 60s and now is that we can place our own representatives, people who look and think just like us, into places of power.   Many people dislike the Tea Party Republicans but they are getting their voices heard in the loudest way.  With economic support we can educate our people on the importance of the local elections, working our way up to control states, taking over all offices from the judges, DAs, city councilmen, the state house and senate.  We can do it but we have to work together.  David Johns, told me that I make the mistake of thinking all black people are collectively woke when there has never been a time in history of such an accord.  I think that time really can be now.  The time when we organize the academics and the streets to lead ourselves out of this dark place we call America.  I wanted my first post to be about the things I hoped for, the knowledge I sought to impart.  Now you know my motive as well.