Tuesday, August 14, 2018

The #1 Reason Most Americans Can't Retire (Part 2)

Now that I've provided some insight from Part 1 of this 2 part post into the reason why many Americans find themselves in a situation where they have nothing saved for retirement and how many Americans couldn't cover a $400 unexpected expense without resorting to debt, we can delve into the possible solutions to address this pandemic that our country faces.


As I alluded to in part 1 of this 2 part series, I believe that simply spreading the message that this country faces a systemic crisis in regards to financial illiteracy and retirement is the most important part of the equation to work towards solving the above issues. Without knowing the origin of an issue, along with the severity, we can't effectively provide solutions to this problem. Trying to fix this problem without fully understanding the magnitude of it is comparable to a doctor trying to treat a patient for an illness they don't yet have a diagnosis for. It's not advisable to attempt to fix a problem without fully understanding it first.

Education System Reform

The first course of action now that we know the scope of this problem is to prepare the younger generations such as myself on finances while they are still in middle school and high school. Of course, there are two obstacles to this plan of action succeeding. The first is that many of the teachers that would teach these courses probably don't know much about personal finance themselves, and the good intentions of this program could be somewhat negated in that regard. The second issue to this is determining how we can actually make personal finance an interesting topic to teenagers. There are even many adults whose eyes glaze over when talking personal finance. However, the good news is that teenagers are still highly impressionable if the ideas originate from someone they respect or view as "cool." If it was required in a personal finance class that everyone read a blog such as MrFreeAt33 or Mr Money Mustache, that could perhaps appeal to youth as it did for me. Who could object to being able to live on their terms? I believe even kids could put 2 and 2 together and realize that if they were financially independent, then every day would be like a "summer vacation" in a sense. Even if there are objections to the above sites, I believe that everyone can take away from the sites that there may come a day that you may be unable to work for whatever reason. This could be because you are physically or mentally unable to hold employment or you are fired from your job because of downsizing. If this does occur, wouldn't it be more favorable to have assets that could help you through those tough times? Asking these questions of students that are basically impossible to refute could be useful in transforming their mindset from the spender mindset to the saver/investor mindset. Driptilrich also referenced a great idea in this post. We are taught in school the effects of compound interest in abstract terms, but we are never really taught about the benefits of investing or the drawbacks to being in debt. I would expand curriculum to teach the youth the true power of compounding in the world of personal finance.

Public Policy Reform

Lastly, as much as I believe in the personal responsibility aspect of addressing this issue, I do believe that because there will be some Americans that aren't able to save enough for retirement or simply choose not to, it is important that our political leaders address the issues facing Social Security Retirement benefits. The Social Security trust fund is expected to be depleted by the year 2034 according to this article by Forbes. As the Baby Boomer population ages with 10,000 Americans retiring everyday, the expenditures for Medicare and Social Security will continue to consume more of the budget each year. This presents major problems for the tens of millions of Boomers that are relying upon these benefits because either benefits will have to be cut in a significant way, FICA taxes will need to be increased, or both will need to occur to preserve the benefits that our aging population is dependent upon. I'm split on whether our politicians will do what needs to be done to address this problem in a timely manner as they continue to "kick the can down the road" on this issue as they seem to do with almost everything, although I do believe they will be forced into both raising FICA taxes and decreasing benefits because of their procrastination at some point.


In summary, I don't have any one suggestion that will solve the financial illiteracy and retirement crisis completely on its own. Rather, I am offering the above suggestions to hopefully begin a meaningful conversation. 

What are your thoughts on my suggestions to remedy this dire situation that most Americans find themselves in? Are there any possible solutions that I may have missed?

Saturday, August 11, 2018

The #1 Reason Most Americans Can't Retire (Part 1)

If you've paid attention at all over the past few decades, it is pretty evident that America is facing a pandemic of financial illiteracy. We'll discuss in further detail the unfortunate reality that most Americans face regarding their financial future and what led us to this point. In part 2 of our conversation, we will discuss possible solutions to remedy this situation. The goal of this post, and the second post that will be published on Tuesday, August 14, is to raise attention to this matter and start a thorough discussion in the community what needs to be done to address this matter. After all, we can't fix a problem that 1) we aren't fully aware of and 2) that we don't fully understand the severity of.

In looking at the above quiz that I took here, let's just analyze this a bit. I got 6 out of 6 correct as anyone in this community would. What I find unsettling is that the average American only answered 3 of 6 correctly. Next, let's go over some of the grim statistics concerning the grave financial situation of many Americans because of the financial illiteracy.

Forbes does an excellent job of outlining statistics that describe the financial plight many of our fellow Americans face if you would like more commentary. The basic points that they cover are as follows:
1) 44% of Americans can't cover a $400 emergency without having to resort to debt.
2) 43% of student loan borrowers aren't making payments
3) 38% of households have credit card debt
4) 33% of Americans have $0 saved for retirement, absolutely nothing

Obviously, it doesn't take a personal finance expert to know that these are absolutely frightening statistics, and speak to the financial illiteracy that is ubiquitous in America. One could argue that these stats only apply to those that make below average salaries, but that simply isn't the case. What makes this issue a true pandemic is that it affects every demographic. Financial illiteracy doesn't care about your race, gender, sexual orientation, or income level. Without adequate financial knowledge, ANYONE is more prone to making silly decisions.

What got us here?

The easiest explanation of what got us here is likely the transition that America is undergoing from employers funding their retirement to employees bearing the burden to ensure a prosperous retirement. According to this article by Motley Fool, roughly 38% of Americans in the private sector had a pension plan in 1980; whereas that number has been more than halved at 18% as recently as 2017. Without going into much detail, this is also a contributing factor in the high turnover rate of the American workforce with 40% turnover per year. Perhaps part of the reason that Americans aren't financially literate is because they haven't really had to be up until the past couple decades because simply contributing to one's pension plan for 40+ years was about all they needed to do to retire with Social Security Retirement benefits kicking in around the time they retired. As the numbers show, this simply isn't the case. We need to emphasize to others that times have changed and the burden has shifted from the employer to the employee to fund an employee's retirement. You are in charge of your financial future from this point forward, not your employer.


Having brought these issues to light, were you surprised by any of the data above? Are there any other causes to the retirement crisis facing Americans besides the shift of responsibility from the employer to the employee, and a lack of financial education? Lastly, what solutions do you offer to remedy this situation as part 2 of our 2 part guide?

Tuesday, August 7, 2018

Why to Pursue Financial Independence

I wanted to take a moment today to explain my rationale for pursuing financial independence and to convince you or remind you why you should pursue financial independence. I'm not sure if anyone else in the community has so called "tunnel vision," but I know that I do at times. I can become so fixed and determined to achieve something that I forget why I was even striving to achieve it to begin with. With that said, I've found that it's much easier to fully commit to something when you have clear and concise reason(s) for pursuing a goal. When life gets tough and when your goal seems elusive, it is the reasons you're striving to accomplish that goal that will guide you through the challenges you will inevitably encounter.

1. The primary reason that I am pursuing financial independence is because when you are financially independent, you are free to live on your own terms. This can mean waking up whenever you'd like, working whenever you choose, on whatever you choose. It almost goes without saying that when you are financially independent, you are able to live however you choose. This leads us into the next reason that closely relates to the above reason.

2.  As a byproduct of being financially independent and being able to live on your own terms, it is almost an absolute certainty that you will be less stressed as a result of the first reason. I've never really had to endure a toxic work environment to this point in my career, but I know of many that deal with unreasonable bosses or clients. I don't want anyone to misconstrue this reason as me condoning the idea that all stress is bad or unhealthy because stress can actually be beneficial in optimizing our performance (i.e. deadlines). Having said that, I believe that many of us can be too stressed at times, and this could have a detrimental impact from both a mental and physical health standpoint. This leads us into our third and final reason.

3. When we are working 40+ hours a week on top of any additional responsibilities we have, it becomes clear that we don't have as much time as we would like to better ourselves through exercise, education, entrepreneurial endeavors, philanthropy, etcetera. Tying this into the first reason, it is financial independence that allows us to focus on improving ourselves, which can in turn be used to better the lives of others.

Having discussed my 3 reasons that I am pursuing financial independence and why you should, these 3 reasons could all be summarized in a couple sentences. Financial independence provides you with the flexibility that others do not have! You are free to do as you choose, and as a result, you can improve yourself and the lives of others.

What are your reasons for pursuing financial independence? Are there any major reasons for you that I missed?

Saturday, August 4, 2018

July 2018 Dividend Income

Between work, school, the blog, and sports, this summer is passing me by at an incredible rate. It's inconceivable that another month has passed us by, and that means that another month of dividends have arrived in my brokerage account. With that being said, it's time to examine my dividend income for the month of July.

The trend of the first month of the quarter being my slowest in terms of total dividends received continues. Overall, I received $16.83 in dividends from 7 companies in the month of July. Compared to a quarter ago, I received $10.69 in April of this year from 5 companies. That's a quarter over quarter (QOQ) growth rate of 57.4%! Besides the additions of PPL (PPL) and Ventas (VTR) that contributed $6.03 in additional income, I received a total quarterly dividend raise of $0.10 from Leggett and Platt (LEG) and a token $0.01 raise from WP Carey (WPC). Also, the diversification of the portfolio can be observed by noting that I didn't receive any hefty dividends from any one company this month, as I will be in the month of August from a few companies.

Although I won't be able to increase my dividend income at a clip near 57.4% again for the next year due to paying my way through the last year of undergrad to graduate with no debt, I do believe that my dividend income will continue to see impressive growth simply through the impact of dividend increases and dividend reinvestment. My dividend income should continue to see incredible growth in the end months of quarters (i.e. March, June, September, and December) because I'm still able to contribute 7% of my gross pay to my Simple IRA retirement plan through work, in addition to a 3% match from my employer.

How was your July? How many companies paid dividends to you? What impact did your new additions to the portfolio have on your dividend income when compared to April?

Tuesday, July 31, 2018

Expected Dividend Increases in August

Another month has come to pass, which means it is time for the first installment of the expected dividend increases series. Prior to delving into the dividend increases that I anticipate for the DGI portfolio for the month of August, I'll start by recapping the dividend increases from July, and their impact on my dividend income.

July Dividend Increases

#1: JM Smucker (SJM) increased its quarterly dividend per share from $0.78 to $0.85 for a 9% raise. Given that I own 2 shares of SJM, this translates into a $0.56 increase in annual dividend income. The 9% raise came as a bit of a surprise to me as I was expecting a raise of around 5%, but I'll certainly take the raise!

#2: EQT Midstream Partners (EQM) increased its quarterly dividend per share from $1.065 to $1.09 for a 2.3% increase. Although the dividend increase sounds modest at face value, EQM raises their dividend every quarter. The raise from EQM was about what I expected, and I look forward to many more raises from EQM. With the 4 shares that I own, the increase in annual dividend income from EQM was $0.40.

#3: Enterprise Products Partners (EPD) increased its quarterly dividend per share from $0.4275 to $0.43 for an increase of 0.6%. Similar to EQM, EPD has a history of increasing its dividend by a marginal amount every quarter. Overall, the increase in annual divided income from this holding amounts to $.09 due to my 9 shares.

#4: On the date of this post, British Petroleum (BP) increased its quarterly dividend per share from $0.595 to $0.615 for an increase of 3.4%. Given my 4 shares of BP, this increase boosted my annual dividend income by $0.32. This dividend increase came as a bit of a surprise, and it marks the first time in 4 years that BP has raised its dividend. This was certainly a welcomed dividend increase! 

Expected August Dividend Increases

#1 - Altria Group (MO): Given that management tends maintain a target payout ratio of 80% of its earnings, I believe that another raise from MO is likely. Using the most recent earnings guidance of $3.90 to $4.03 that management reaffirmed, I would venture to guess that MO will increase its quarterly dividend from $0.70 to $0.77 for a raise of 10%. The next few months will be rather light in terms of dividend increases for my portfolio as the majority of increases in my portfolio occur during the last couple months of the year, as well as the first couple months of the year.

In totality, I received 4 raises from my holdings in July for an increase in annual dividend income of $1.37. It would take an additional investment of $34.25 at a 4% yield to reproduce the effect that the most recent dividend increases have had on my portfolio. Although this seems rather insignificant at this point in time, one has to remember that this is the impact of a single month of dividend increases with 4 increases out of the 31 companies that I own. This increase also doesn't include any additional investments that I make or reinvestment of dividends.

How many dividend increases did you receive in the month of July? How many are you expecting in August?

Saturday, July 28, 2018

Introducing Dividend Income in Terms of Vacation Pay

In the DGI and FIRE communities, it is very common for us to report our income that originates from dividends in terms of the amount that we are provided in annual income. However, I have taken this concept a few steps further from an annual or monthly income perspective, and shifted to a perspective of what our dividend income equates to in terms of hours/weeks of vacation pay from our day jobs.

For instance, my portfolio of dividend growth stocks and the mutual fund in my retirement account currently generate total annual dividends of $414.35. I view my dividend income with the perspective that I make $12.25 an hour at my current job including benefits. Over the course of a 40 hour workweek, my weekly income net of taxes is roughly $418.50 (without adjusting for an income tax return). This would equate to an hourly take home pay of $10.46. When dividing our $418.50 into $10.46 an hour, we arrive at 40 hours of pay from my day job.

For those wondering why I used my full dividend income in calculating how many hours of wages my dividend income is equivalent to, I did this because I pay no federal taxes on my dividends due to the current income bracket I am in. Also, I didn't deduct FICA taxes from my dividend income because dividends are not subject to FICA taxes. If one wanted to be very precise, they would have to factor in their state income tax liability on the dividends they received, in addition to adding their tax return into their weekly net pay to arrive at their net wage per hour, and accordingly calculate how many hours of labor their dividends equate to after taxes.

For the intent and purpose of this article, I am just trying to illustrate what my dividend income equates to in terms of hours/weeks of vacation per year. In summary, my current dividend income roughly matches what a week of vacation from my day job would amount to after taxes.

What is your current dividend income? How does that equate into terms of vacation pay for you? Did you have this perspective prior to reading?

Tuesday, July 24, 2018

The Financial Impact of Many Side Hustles

I thought I would take a few moments to make note of a few of my side hustles with a brief description of each, and how that translates into the overall theme of FIRE.

My first side hustle is an ad lockscreen app called Smore. For those unfamiliar with what an ad lockscreen app is, it is essentially an app that allows the user to earn points while viewing content and ads that Smore sponsors. What I like most is that Smore has a low minimum cashout at $1 (100 points) in many useful gift cards, such as Amazon and Google Play. Users earn $0.10 (10 points) a day as long as they unlock their phone screen at least once during the day. The payout in this case is almost immediately emailed to you with the gift card code. This app generates $36.50 a year in dividend income with everyday use, which isn't bad considering it takes half a second to swipe it away whenever you use your phone. Assuming a 4% dividend yield, it would take a $912.50 investment to match the income of this side hustle (if it could even be considered a side hustle given the relatively minimal effort). If this side hustle interests you (and why wouldn't it), feel free to use my referral code of R4R4EM so that you can earn an immediate 75 points, and I can earn 100 points after your first 10 days of use.

Another similar app that I use is Adme, which has a more variable point system depending upon how often you use your phone. Users can earn a daily bonus of $0.02 by clicking on the Bonuses tab. In viewing my history tab, we can see I cash in roughly every 3 months. This would equate to roughly $20 a year in added income which would require a $500 investment assuming the same 4% yield. Adme allows users to redeem points for Paypal, Amazon, Google Play, and much more. For those interested, my referral code is Adme.mobi/r/TaMCSOgJzB. You would earn $0.30 upon inputting the referral code.
The last side hustle that I engage in is Microsoft Rewards. The mobile browser, Edge offers the ability for users to earn 120 points a day (5 points each search), while desktop offers 150 points a day to use Bing. There is also generally the ability to earn 50 points a day through a brief daily poll, 3 question quizzes, etc. In total, I generally earn around 300 points per day through this side hustle. It is a relatively quick process that takes about 6-7 minutes a day to earn the full amount of points. For context, it takes 5,250 points to redeem a $5 Amazon gift card that is sent to your email that you provide when you sign up. I have redeemed $120 of Amazon gift cards from this side hustle. In order to earn that same $120 using a 4% yield, you would need to invest a whopping $3,000!

In summary, by implementing these 3 side hustles, I have essentially replicated what a $4,412.50 investment would produce in dividend income at a 4% yield. I consider that to have a tremendously positive impact on my finances as these side hustles have helped provide hundreds of dollars in Amazon gift cards that have partially offset the cost of my textbooks for college.

What side hustles do you engage in? How much of an investment would it take for dividends to replicate your side hustle income?